RTRS: FTSE falls 1.5 pct as banks, oils erase gains
Down 63.15 points at 4,108.10 by 1157 GMT
* Investors eye slew of U.S. data
* UK economy shrinks at fastest rate since 1990
By Nicholas Vinocur
LONDON, Nov 26 (Reuters) - Britain's top share index was down 1.5 percent at midday on Wednesday, with banks and oil stocks leading the fall on renewed caution as investors braced for more news about the health of the U.S. economy.
At 1157 GMT, Britain's FTSE 100 .FTSE was 63.15 points lower at 4,108.10, after rising more than 10 percent in the previous two sessions.
Oil shares led falls on the blue-chip index, with Petrofac (PFC.L: Quote, Profile, Research, Stock Buzz) down 5.3 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) falling 3.7 percent, and Tullow Oil (TLW.L: Quote, Profile, Research, Stock Buzz) dropping 3.2 percent.
Banks erased earlier gains, as HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) and HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) all lost between 1.9 and 6.2 percent.
Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) shed 1.5 percent. The bank, whose losses on complex debt led to a 20 billion pound ($31 billion) British government rescue, has agreed to sell its 65-branch retail banking network in the U.S. state of Indiana to Old National Bancorp (ONB.N: Quote, Profile, Research, Stock Buzz). [ID:nN25300162]
Data on Wednesday showed Britain's economy shrinking by 0.5 percent in the third quarter, its fastest rate since 1990, while household spending dropped for the second quarter in a row. While the FTSE 100 showed little reaction to the UK data, which was in-line with expectations, market participants looked ahead to new jobless, consumption and price data for the United States, due for release at 1330 GMT, for signs of the severity of the economic downturn.
In a move to stimulate the U.S. economy, the Federal Reserve threw a massive life-line to consumers, with two new programmes aimed at making it easier for them to obtain loans for homes, cars and on credit cards.
Despite a weakening outlook for the British economy, analysts said shares could rally in coming weeks as investors hunt for bargains in oversold stock.
"The market looks extremely cheap and oversold, and for what it's worth, we think we're near the bottom despite deterioration in the economic outlook," said Rohina Rathour, head of UK investments at Sarasin Chiswell.
"We have a very proactive set of central banks across the world and that's a more positive sign that this recession will turn around more quickly than previous recessions."
"It's only natural for the market to give back some of its gains after rising 10 percent," she added, referring to Monday's rally.
Utilities, usually seen as defensive stocks because of their regular income streams, also lost ground.
British water company United Utilities (UU.L: Quote, Profile, Research, Stock Buzz) was the FTSE 100's fifth-largest faller, dropping 4.5 percent after it cut dividend payments by 30 percent, despite reporting a 6 percent rise in first-half underlying profit. National Grid (NG.L: Quote, Profile, Research, Stock Buzz) also dropped 3.5 percent.
JOHNSON MATTHEY OUTPERFORMS
Johnson Matthey (JMAT.L: Quote, Profile, Research, Stock Buzz) rose 12.6 percent in a downward market after the platinum producer said underlying second-half pretax profit should be between 5 and 15 percent lower, in line with market forecasts, as it met expectations with a 20 percent rise in underlying first-half profit.
Credit Suisse analysts said the range given for the second half should provide some comfort.
Compass Group (CPG.L: Quote, Profile, Research, Stock Buzz) added nearly 10 percent after the world's biggest caterer posted a 30 percent increase in annual profit, meeting expectations, and said trading in the new financial year had started well.
Miners were firmer, except Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) which was down 3 percent to extend Tuesday's nearly 37 percent fall after BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) walked away from its hostile takeover bid for Rio.
Rio said on Wednesday it was confident it could sell billions of dollars in assets to pay down massive debt, despite concerns about a lack of buyers. [ID:nLQ608891]
Among other miners, Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz), Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz) and Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) shed between 1 and 2 percent. Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) bounced 4.4 percent and BHP rose 1.5 percent. (Editing by Simon Jessop)
