Britain's FTSE edges lower as China scandal hits Glaxo

Mon Jul 22, 2013 4:01am EDT

* FTSE 100 down 0.3 pct

* Strong technical support seen at 6,600

* Randgold, Fresnillo can weather lower metal prices-JPM

By Toni Vorobyova

LONDON, July 22 (Reuters) - Britain's FTSE 100 edged further off 7-week highs on Monday, with gains in miners outweighed by a retreat in heavyweight GlaxoSmithKline as the bribery scandal engulfing the drugmaker in China deepened.

Glaxo, the fifth biggest company in the FTSE 100, fell 1.2 percent after saying that some of its executives in China appeared to have broken the law.

"Things seem to be getting more worrying ... We really now have to see more of the facts before forming a definitive view. If it does transpire that Chinese law has been broken we feel that downside pressure for the (Glaxo) share price will remain in place for the short to medium term," said Atif Latif, trader at Guardian Stockbrokers.

The share price fall took 3.8 points off the blue-chip index, which was down 16.54 points, or 0.3 percent at 6,614.13 points by 0736 GMT. The FTSE has been on the back foot after stumbling against technical resistance around its late May peaks near 6,657 points at the end of last week, though technical charts still suggest scope for further gains.

"We look for a downside hold of 6,600 and then a base forming for a move higher," Latif said.

Miners helped keep the benchmark above that key support level, cheered by a recovery in gold to one-month highs. The sector has shed a fifth of its value so far this year in tandem with a similar slump in the bullion price.

Fresnillo and Randgold Resources led the gainers, up 2.9 and 2.8 percent respectively, after JP Morgan deemed them - along with mid-cap Polymetal - as the best able to weather weaker metal prices.

"The equities have been routed as investors believe producers have been complacent, with mine and capex plans calibrated on much higher gold prices, meaning free cash flow generation is overtly and in certain cases perilously negative for the next two years," analysts at JP Morgan said in a note.

"Yet we believe investors underappreciate the potential for self-help among the UK gold producers; leverage is low, growth is imminent, and Randgold, Fresnillo, Polymetal and even African Barrick have flexibility to reduce costs and protect free cash flow." (Reporting By Toni Vorobyova; Editing by Toby Chopra)

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