London shares closed higher at the end of trade on Thursday as investors welcomed the US Federal Reserve's surprise decision to keep its vast stimulus policy unchanged.

The FTSE 100 rose 1.01 percent to 6,625.39 points.

"The Fed have made clear that the main factor preventing tapering is growth, or rather a lack of faith in the current recovery," Max Cohen, Financial Sales Trader at Spreadex said.

"Investors responded by propelling U.S. stocks to record highs and driving down bond yields," he added.

The Federal Reserve decided overnight to hold off from winding down its $85-billion-a-month bond-buying -- known as quantitative easing (QE) -- in a move which confounded market expectations.

Investors across the globe cheered the prospect of continued easy money injections into the world's biggest economy.

In an eagerly awaited announcement, the Fed said it would keep the stimulus in place as it wanted to further gauge the economic impact of public spending cuts and a spike in interest rates in the past four months.

Instead, the US central bank cut its growth forecast for this year and next as Bernanke warned of possibly "very serious consequences" from a brewing political battle in Washington over a new budget and the US debt ceiling.

"The Federal Reserve's policy is to do whatever we can to keep the economy on course. And so if these actions led the economy to slow, then we would have to take that into account, surely," he told reporters.

He said the bank could still start reducing the bond-buying -- which aims to hold down long-term interest rates -- in the next three months, but only if the economic outlook improves.

"There is no fixed calendar," Bernanke said.

Back in London, Lloyds Banking Group remained the most traded blue-chip by volume with 158.16 million units switching owners, followed by Vodafone which saw 209.75 million units change hands.

The day's best performer was Randgold, which rose 8.11 percent to 4841 on strong gold prices. It was followed by Aberdeen Asset Management climbing 23.50 percent to 390.80.

Johnson Matthey was the biggest loser, falling 1.45 percent to 2852. easyJet was next descending 1.22 percent to 1294.

On the currency markets, sterling slipped to $1.6041 at 5:04pm from $1.6146 at the same time on Wednesday, and also lost 1.1859 euros from 1.1940 over the same period.