Strength in financials help keep UK stocks steady

Mon Jan 28, 2013 7:09am EST

* FTSE 100 index flat, consolidates at 4-1/2 year peak

* HSBC leads rally by UK banking stocks

* Vodafone again lends blue chips its strength

* Capita knocked by Canaccord downgrade

By Jon Hopkins

LONDON, Jan 28 (Reuters) - Strength in banks driven by global lender HSBC supported Britain's top share index at mid-session, with the index flat and consolidating at its highest level in four-and-a-half years.

At 1149 GMT, the FTSE 100 index was up 0.40 points, or 0.01 percent at 6,284.85, having traded in a 5 point range all morning after gaining 0.3 percent on Friday to reach its highest level since mid-2008.

The FTSE 100 has risen by some 6.5 percent since the start of 2013 - a bigger rise in January than the index achieved in the whole of 2012, when it rose 5.9 percent.

"London's blue chip index has enjoyed its best start to the year for more than two decades (not bad considering it only turns thirty next year), and today we sit less than 10 percent from the all-time high," said Will Hedden, sales trader at IG.

"Equities are in rude health, and analysts are rushing to talk up their quality and call the start of the next bull market.

"What puzzles many is that we have come so far from 2008 lows, yet only now are we contemplating the start of a great period for equities - one in which 7,000 and new territory looks very possible for 2013," Hedden added.

HSBC's advance added almost 5.0 points alone to the FTSE 100, with the stock up 1.0 percent, helping the UK banks gain 0.7 percent.

The sector has been buoyed by Friday's news that banks will repay early 137 billion euros of crisis loans taken a a year ago from the European Central Bank, and which ECB President Mario Draghi has said "avoided a major, major credit crunch".

The bigger-than-expected repayment was seen as a sign that at least parts of the financial system are returning to health.

Other financial stocks also took heart from the move, with insurer Old Mutual the top FTSE 100 gainer, up 1.1 percent. Prudential added 0.8 percent and Aberdeen Asset Management rallied 0.9 percent.

Market heavyweight Vodafone was also a big contributor to keeping the FTSE 100 steady, up 0.8 percent and alone adding more than 2.5 points to the index as the telecoms firm extended its advance into a third consecutive session.

Traders have cited talk that the mobile telecoms group may sell its stake in its U.S. wireless joint venture to partner Verizon as the main reason behind the rally.

CAPITA CUT

Outsourcing group Capita was a big blue chip faller, down 1.9 percent, with traders citing the impact of a Canaccord Genuity rating downgrade to "sell" from "hold".

The broker said it expected Britain's coalition government may look elsewhere than Capita when handing out its next batch of contracts, which could impact the company.

"Capita is a well-managed business that still achieves high returns on operating assets. But the attractions of its investment case have diminished," Canaccord said in a note.

Capita was one of the most-traded blue chip stocks, with its volume at almost 50 percent of its 90-day daily average by midday, compared with overall FTSE 100 volume of 20 percent.

Falls by energy heavyweight BG Group knocked the most points off the FTSE 100 index, with its 1.4 percent decline accounting for 2.0 index points. Traders cited moves by investors to book profits after recent renewed bid speculation for the company drove the stock higher last week.

Technical indicators suggesting a pause in BG's recent gains also led some investors to cash in on recent gains, traders add.

British newspaper reports last week stoked long-standing speculation that BG might be a target for a rival such as Royal Dutch Shell, although traders remain sceptical over the likelihood of any such deal happening.

"I've taken a little bit of profits. There's been a lot of bid speculation for them and there's just some natural profit-taking now," said Hartmann Capital trader Basil Petrides.

Royal Dutch Shell gained 0.4 percent, with Credit Suisse reiterating its "outperform" stance on the oil firm ahead of its full-year results and 2013 strategy update due on Thursday. (Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans)

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