Basic resources stocks lead UK FTSE down after gloomy results
* FTSE 100 down 0.5 pct at 6,431.77 pts
* BHP, Glencore Xstrata, CRH lead selloff in material stocks
* Beaufort sees FTSE at 6,300 as investors factor in Fed tightening
* Iveagh would buy into 5-10 pct fall if bond yields stabilise
By Francesco Canepa
LONDON, Aug 20 (Reuters) - Britain's top share index fell on Tuesday as gloomy earnings reports fuelled profit-taking on some basic material and energy stocks and investors braced for a dialling back of U.S. monetary stimulus.
Shares in miners BHP Billiton's and Glencore Xstrata fell 1.5 percent and 1.9 percent respectively as the former announced a lower-than-expected profit and the latter wrote down the value of its mining assets due to sliding metal prices.
They led a selloff in the pan-European STOXX 600 Basic Resources index, which was hit by profit takers after it rose 16 percent since early July and saw its 12-month forward price/earnings ratio, a key valuation metric, rise to levels not seen since 2010.
Despite the recent rebound, which was fuelled by signs of resurgent economic growth in Europe and the United States, mining companies remain under pressure from cooling demand from the world's top consumer, China.
"I've been recommending lightening up on the miners for the past two or three weeks," Mike Franklin, head of investment strategy at Beaufort Securities, said. "At the moment there's a lot of uncertainty around (China) and people are quite happy to lock in their profits."
Also weighing on the material sector, which encompasses companies that focus on metals and basic resources, was building supplies company CRH, down 3.2 percent after it cut its full-year earnings outlook.
John Wood Group, down 7.5 percent, was the top blue-chip faller as the energy services company warned that weakening business and project delays would impact earnings growth for the rest of this year and into 2014.
Material and energy stocks knocked a combined 10 points off the FTSE 100, which was down 34 points, or 0.5 percent, at 6,431.77 points at 1505 GMT.
The index was set to close above a psychological support level at 6,400, showing some investors were prepared to buy into Tuesday's dip and sending a bullish signal in the very short term.
The FTSE has fallen 3.5 percent since the start of the month, echoing a sharper selloff in U.S. Treasuries, as investors factored in expectations that the U.S. Federal Reserve will start scaling back its bond-purchase programme, which has helped the FTSE rise 22 percent since June 2012.
Beaufort's Franklin believes the index could fall to 6,300 in the coming weeks, a 2 percent drop from current levels.
Chris Wyllie, chief investment officer at wealth manager Iveagh, said he would buy into a dip of 5 to 10 percent in the FTSE provided yields on U.S. Treasuries stabilised, which he saw happening at around 3 percent, from 2.8 percent currently.
"If we have broadening growth globally, so even Europe is out of recession, but it's not so hot to really bring the authorities to a proper rise in interest rates, and you have tapering behind us, that's a pretty good environment to find yourself in," Wyllie said.
Traders will be seeking clues on when the programme may be trimmed when minutes of the Fed's July meeting are issued on Wednesday, with many expecting the reductions to start in September.
"Investors (are running) for cover...as the markets price in high probability that the Fed will start to rein in their stimulus programme in September," Mike McCudden, head of derivatives at Interactive Investor, said. (Additional Reporting By Tricia Wright)