House building stocks were shaken by a surprise announcement by the Bank of England that it is to scrap a flagship initiative rewarding mortgage lending.

The Funding for Lending scheme (FLS), launched last year to encourage banks and building societies to lend by offering them cheap credit, will be refocused next year on stimulating borrowing for small businesses.

It came as the FTSE 100 Index drifted, rising just five points to 6654.5, in the absence of any impetus from Wall Street, where traders are away for the Thanksgiving holiday.

Meanwhile, improvements in economic sentiment in the eurozone helped bourses in France and Germany nudge higher.

The FLS move, designed to prevent the emergence of a new bubble in the housing market, prompted a rise in sterling as it was viewed by some in the financial markets as a tightening in monetary policy.

The pound was up one cent against the greenback to $1.63, while it was flat against the single currency at €1.20.

FLS and the Government's Help to Buy scheme have been a boon to the house building industry in recent months, lifting shares in Persimmon by more than 50% in the last year.

The FTSE 100 construction firm, which trades as Charles Church and Westbury Partnerships, fell by 6% or 76p to 1170p.

A host of second-tier rivals were also impacted, including Taylor Wimpey down 7.1p at 107.4p, Bellway off 85p to 1446p, Bovis Homes down 45.5p to 777p and Redrow 14.9p lower at 273.5p.

At the other end of the FTSE 250, shares in Thomas Cook jumped by 15% after the holiday giant slashed losses and highlighted further steps in its turnaround.

Announcing underlying earnings growth for the first time in three years, chief executive Harriet Green upped performance targets under the recovery plan, helped by the faster-than-expected progress on slashing costs from the group.

Thomas Cook shares rose 22.5p to 175.7p, while blue-chip rival TUI Travel benefited from the improved sentiment in the sector as shares rose 6.9p to 369.7p.

B&Q owner Kingfisher was a big faller in the FTSE 100 after it said its markets remain challenging, particularly in France after a 5.6% fall in third quarter underlying profits at the Castorama and Brico Depot arm.

A strong performance from Screwfix meant profits in the UK and Ireland were up 7.9% but Kingfisher's shares still slipped 17.4p to 378.6p.

Pub chain Marston's was 7% or 11.4p lower at 143.7p in the FTSE 250 Index after it said underlying profits were 1% higher at £88.4 million in the year to October 5.

The company also announced the £90 million sale of 202 pubs to a retail property firm, a move which will help it reduce the interest payments on its £1 billion debt mountain.

The biggest FTSE 100 risers were Rio Tinto, up 122p to 3261p, Fresnillo up 23p to 835.5p, Old Mutual up 5.4p to 199.4p and Anglo American up 36.5p to 1375p. The biggest fallers were Persimmon, down 76p to 1170p, Kingfisher down 17.4p to 378.6p, Travis Perkins down 49p to 1783p and easyJet down 33p to 1411p.

Asian shares were in a buoyant mood, with Japanese stocks hitting their highest close in nearly six years after the yen fell sharply on relatively positive US economic data, while two major regional currencies slumped.

US jobless claims unexpectedly fell last week and the November Thomson Reuters/University of Michigan consumer confidence improved from a preliminary reading, while the Chicago PMI held up better than expected last month after surging in October.

A soft October durable goods report was the only dent to an otherwise upbeat set of figures.

The Indonesian rupiah fell to its psychological support at 12,000 per dollar, the first time since March 2009. The currency is seen vulnerable to capital outflows once the US Federal Reserve begins dialling back the massive stimulus that has fuelled asset prices in emerging markets.

The dollar hit a six-month high against of 102.28 yen on Wednesday, adding to a 0.8% gain overnight and setting its sight on a 4-1/2 peak of 103.74 yen reached in May.

As the yen tumbled, Tokyo's Nikkei finished up 1.8% at 15,727.12 yesterday, the highest closing level since December 2007. The Nikkei is up 51% this year in local currency terms, outpacing a 27 % jump in the US S&P 500 and a 16% rise in the STOXX Europe 600 index.