UK shares fall as euro zone slips back into recession

Thu Nov 15, 2012 7:19am EST

* FTSE 100 index falls 0.4 percent

* Energy stocks slip on growth worries

* Wood Group hit after fails to make MSCI UK cut

By Alistair Smout

LONDON, Nov 15 (Reuters) - Britain's top share index fell on Thursday as news that the euro zone had fallen back into recession and a lack of progress in the U.S. over fiscal issues provided few reasons for nervous investors to buy.

The UK blue-chip index was down 20.48 points, or 0.4 percent, at 5,701.53 at 1140 GMT, having dropped 1.1 percent on Wednesday, closing below its 200-day moving average at 5,729 for the first time since July.

The index traded in a tight range around key support at 5,700 points, avoiding a convincing break below that level.

"There's been a lack of positive catalysts. For every little bit of good news you get, it's largely small, or mixed and counterbalanced with some bad," said Robert Quinn, Chief European Equity Strategist at Standard & Poor's Capital IQ, citing data released out of the euro zone.

Although French and German growth proved resilient, the euro zone slipped back into recession between July and September, contracting 0.1 percent on top of a 0.2 percent drop in the second quarter.

"It becomes a game of confidence. Once people see a few reaons to start buying again, it becomes self-fulfilling," Quinn said.

"You never know entirely when to call the bottom of the market but we're getting closer to that point."

There was little reaction to UK data showing a bigger than expected fall in retail sales, which account for about a fifth of UK gross domestic product.

As U.S. politicians geared up for a tough battle over the 'fiscal cliff' of spending cuts and tax hikes which could jeopardise growth, economically sensitive energy stocks came under pressure, dropping 0.5 percent.

BP recovered after losing as much as 1 percent in early trading, but was still down 0.3 percent after an update on the fallout from the Gulf of Mexico oil spill.

The oil firm said it is in talks with the Department of Justice and the Securities & Exchange Commission (SEC) on resolutions to all criminal and SEC claims against it following the Macondo well offshore oil spill, which was the worst in U.S. history.

"I expect volatile trading, but I think any agreement with BP, which would clear out an overhang of uncertainty, is good for the stock," said Joe Rundle, head of trading at ETX Capital.

Wood Group topped the list of FTSE 100 fallers on Thursday, down 6.1 percent, with traders citing the failure of the energy services company to make the list of companies added to the MSCI UK index this month, as it had been seen as a likely addition, crimping demand for the stock.

Just behind Wood Group was, Resolution, which lost 4.3 percent after issuing a downbeat trading update.

The life insurer is to absorb more than 65 million pounds ($103 million) of extra costs from programmes to update its IT systems and outsource back-office functions. (Additional reporting by Tricia Wright)