LONDON (Reuters) - Dovish central bank policy continued to support Britain's blue chip shares around two-month highs early on Monday, but weaker-than-expected profit from heavyweight bank HSBC threatened to take the gloss off an upbeat start.
HSBC pegged back early gains among the financials after it reported first-half pretax profit of $14.1 billion, compared with forecasts of $14.6 billion according to the average estimate of 14 analysts polled by the company.
Europe's biggest bank took 10.5 points off the index.
By 0831 GMT, the FTSE 100 was up 28.33 points or 0.4 percent at 6,676.20, after slipping off two-month highs on Friday when weaker-than-expected U.S. jobs data triggered profit-taking.
Britain's benchmark index, however, is clawing its way back towards its all-time high of 6,950, with support from investors hunting for yield and expectations that the U.S. Federal Reserve will delay winding down its stimulus measures.
A Reuters poll on Friday found that fewer U.S. primary dealers expect the Fed to begin reducing economic stimulus in September than they did a month ago.
"The knock-on impact of the dovish central bank policy is that yield in other asset classes remains suppressed, so equities remain the investment destination of choice," Richard Hunter, head of equities at Hargreaves Lansdown, said.
Hunter said that should the current dovish backdrop remain the status quo then it would not be too long before the FTSE 100 would again be testing highs after failing to break new all-time highs earlier this year.
State-backed UK lender Lloyds rose 3.5 percent, with traders citing a report in the Financial Times saying that Chief Executive Antonio Horta-Osorio had told potential investors that he expects to see up to 70 percent of the bank's earnings returned to shareholders by 2015.
Royal Bank of Scotland, however, fell 1.2 percent after Societe Generale cut its recommendation on the UK lender to "sell" following the bank's disappointing results last week.
Earnings on the whole remain mixed with 63 percent of UK-listed firms meeting or beating expectations in the current quarter but with quarter-on-quarter growth down 6.4 percent, prompting forecasts for the third-quarter to be cut by 6.4 percent, according to Thomson Reuters StarMine data.
"EPS revisions ratio continues to disappoint and it may not be until Q4 when the data improvement is reflected in management optimism. At least the 12-month forward aggregate looks to have stabilised as the PE multiple again tests 12 times," Peel Hunt says in a note.
British engineering company Smiths Group topped the fallers list, down 2 percent after terminating discussions over a sale of its medical division.
Editing by Pravin Char