Britain's FTSE edges down after rally as Fed expresses QE doubts
* FTSE down 0.1 percent at midday
* Traders take profits on 17-month highs after FOMC minutes
* Fresnillo suffers downgrade, gold price hit
* BP benefits as Transocean settles with U.S. Justice Dept.
By Alistair Smout
LONDON, Jan 4 (Reuters) - Britain's top shares edged lower on Friday as investors took profits following a new year surge to 17-month highs and after the Federal Reserve signalled its stimulus programme may be finished by the end of the year.
Precious metals miner Fresnillo led fallers, down 5.7 percent, with traders citing a downgrade by UBS and a weakening gold price as the prospect of an end to monetary stimulus undermines demand for gold as an inflation hedge.
The materials sector, which includes miners and commodity stocks, took 10.5 points off the FTSE 100, pushing it into negative territory. Miners lost 1.5 percent.
"Miners were up 20 percent from mid-November, so they've had a very strong run, having been one of the weak performers for last year," said Nick Xanders of European equity strategy at brokerage BTIG. "With what the Fed is saying, it reminds people that there are still U.S. risks out there, which provides an excuse to take profits."
At 1138 GMT, the FTSE 100 index was down 2.93 points, or 0.1 percent at 6,044.41, having closed 0.3 percent higher on Thursday at another 17-month high, extending Wednesday's 2.2 percent surge.
Minutes from the Fed's December policy meeting released late on Thursday showed some voting members of the Federal Open Market Committee were increasingly worried about the potential risks for financial markets of the U.S. central bank's asset purchases.
The Fed said last month it would keep interest rates near zero until unemployment - expected to have stayed steady at 7.7 percent in December - fell at least to 6.5 percent, as long as inflation does not rise above 2.5 percent.
Xanders said that in the longer run an end to asset purchases with new money, known as quantitative easing, could be an encouraging sign.
"The Fed is saying that if the economy gets better, it won't need the QE, and they'll slowly wean the market off it. It's a question of which you would rather have: continued life support or signs that the patient is improving."
Cyclical stocks, such as miners and banks which rise and fall with the economic cycle, were the main fallers as a withdrawal of support from asset-buying programmes could hurt the global economy.
The energy sector, however, bucked the weaker trend for cyclicals, buoyed by gains in BP which was the top blue-chip riser, up 1.5 percent, and alone added over 4.5 points to the FTSE 100 index.
Switzerland-based rig contractor Transocean has agreed to pay a lower-than-expected $1.4 billion to settle U.S. government charges over BP's massive Gulf of Mexico oil spill in 2010, with the firm admitting that its crew on the Deepwater Horizon was partly responsible. Last year, BP reached a $7.8 billion plaintiffs liability settlement.
"We believe that it could be difficult to pursue a 'gross negligence' case against BP when the main contractor at the well is simply pleading guilty to 'negligence'," Exane BNP Paribas said in a note, reiterating its "outperform" rating on BP.
"We continue to see BP as a key restructuring story in the Oils space with a compelling valuation." (Additional reporting by Jon Hopkins; Editing by Catherine Evans)
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