Britain's FTSE flat as U.S. fiscal deal fillip wanes

Thu Jan 3, 2013 7:11am EST

* FTSE 100 edges slightly lower, down 2.5 points

* Miners weigh, after previous session's gains

* Next kicks off trading updates with high profit forecast

* Serco receives upgrade boost

By Alistair Smout

LONDON, Jan 3 (Reuters) - Britain's FTSE 100 was flat on Thursday, edging slightly lower with miners weighing on the index after it smashed through the 6,000 level for the first time in 17 months in the previous session.

By 1131 GMT, London's blue-chip index slipped 2.54 points to 6,024.83, having hit its highest level since July 2011 on Wednesday after a U.S. deal staving off a series of tax hikes and spending cuts that threatened economic recovery, known as the "fiscal cliff".

The agreement, however, only delayed for two months decisions on spending cuts and an increase in the nation's limit on borrowing, which could shake markets further.

"Much of the excitement from the news of the fiscal cliff deal has waned since yesterday, and as they've kicked the can down the road, and it's difficult to judge from the first reaction how the markets will go in 2013," said Fawad Razaqzada, market strategist at GFT, noting profit-taking after yesterday's rally.

"But if we can get a few more days of gains here after this consolidation, we could see a protracted move to the upside."

The materials sector, which includes commodities dealers and miners, shaved 7 points off the index, enough to bring it into negative territory, with miners losing 0.8 percent after posting 5 percent gains on Wednesday.

However, the index as a whole outperformed European peers, with the French CAC and German DAX losing 0.6 and 0.3 percent respectively.

"The FTSE is holding quite well compared to the other European equity markets, and it's just a healthy correction lower following the strong gains yesterday," said Myrto Sokou, analyst at Sucden Financial Private Clients.

"Usually when we have a correction lower, and there are no strong moves coming out from energy or banks, it's the materials which get put under pressure."

NEXT'S SALES IN LINE

Individual stocks were resilient in the face of global macroeconomic uncertainty, with Next up 2.2 percent after the fashion firm met fourth-quarter sales forecasts and lifted annual profit guidance, giving a boost to the retailers in a strong start to the festive trading update season.

Next's earnings quality score rose to 100 from 95 after its previous filing in June, which suggests the composition of earnings in the recent past is robust enough for its growth rate to be sustainable, according to Thomson Reuters Starmine data.

Services firms had contrasting fortunes, with British outsourcer Serco the second biggest riser after Espirito Santo Investment Bank upgraded it to "buy" from "neutral". Espirito said the relative share price underperformance through 2012 has created an unwarranted valuation discount to peers.

Serco was up 1.7 percent, having fallen 8.5 percent in the last three months of 2012.

Conversely, Compass Group, the world's biggest caterer, fell 1 percent after Espirito cut its rating on the company to "neutral" from "buy", citing valuation grounds.

Compass Group trades on a forward 12-month price-to-earnings smart estimate of 15.6 times, 10 percent higher than its historical average, according to Thomson Reuters Starmine Data. (Additional reporting by David Brett)