Raw materials stocks lead UK FTSE down after gloomy results

Tue Aug 20, 2013 12:06pm EDT

* FTSE 100 down 0.2 pct at 6,453.46 pts

* Index closes well off intra-day low

* BHP, Glencore Xstrata, CRH lead selloff in material stocks

* Iveagh would buy into 5-10 pct fall if bond yields stabilise (Updates at close to reflect late market recovery, adds volume)

By Francesco Canepa

LONDON, Aug 20 (Reuters) - Britain's top share index edged lower on Tuesday as gloomy earnings reports fuelled profit-taking on some basic material and energy stocks and investors cut positions in expectation of less U.S. monetary stimulus.

Shares in miners BHP Billiton's and Glencore Xstrata fell 1.7 percent and 1.6 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 2.2 percent after it cut its full-year earnings outlook.

John Wood Group, down 8 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 8.3 points off the FTSE 100, which ended 12.3 points lower, or 0.2 percent, at 6,453.46 points

The FTSE has fallen around 3 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.

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.

Beaufort's Franklin believes the index could fall to 6,300 in the coming weeks, a 2.4 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.

The FTSE climbed above psychological support at 6,400 and 6,450 points, showing some investors were already prepared to buy into the market's dip and sending a bullish signal in the very short term.

Defensive shares such as healthcare and telecoms led the recovery in late trade, while cyclical stocks, which have been the primary beneficiary of the Fed-fuelled rally, such as financials and miners remained firmly lower.

Trading was relatively thin, with volume at 87 percent of the FTSE's 90-day average. (Additional Reporting by Tricia Wright; editing by Ron Askew)

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