Lloyds slide leads UK's FTSE lower, with Fed meeting deterring some buyers
* FTSE 100 falls 0.3 pct, slips off 1-1/2 month highs
* Lloyds falls after UK govt sells 6 pct stake in bank
* Fed seen starting scale-back to stimulus at meeting
* Citi keeps bullish targets on FTSE 100
By Sudip Kar-Gupta
LONDON, Sept 17 (Reuters) - Britain's top share index slipped from 1-1/2 month highs on Tuesday, with Lloyds bank among the heaviest fallers, while traders held off adding to positions with the U.S Federal Reserve expected to begin reducing its stimulus.
The blue-chip FTSE 100 index was down by 0.3 percent, or 18.93 points, at 6,603.93 points in late session trade on Tuesday, having risen 0.6 percent on Monday to its highest close since early August.
Part-nationalised bank Lloyds fell 3.3 percent to 74.80 pence to make it one of the worst performers, reflecting Britain's sale of a 6 percent stake in the company at 75 pence per share.
The majority of analysts and investors welcomed the government's move, arguing it marked further progress in Lloyds' recovery, although analysts at Investec kept a "sell" rating on Lloyds and pointed to the bank's "anaemic" profits.
Investors were also refraining from buying new equity positions as the Fed started a two-day meeting on Tuesday.
According to a Reuters poll of economists, the meeting is expected to see the Fed announce it will scale back a bond-buying programme that has driven much of this year's global equity rally by $10 billion.
The Fed's programme - known as "quantitative easing" (QE) - drove down bond yields and pushed investors over to the better returns on offer from stock markets, with the FTSE 100 up 12 percent since the start of 2013.
"There may be some short-term corrections and volatility as a result of the Fed meeting but the long-term outlook for equity markets is still extremely attractive," said George Godber, who manages the Miton UK Value Opportunities Fund.
"Even if they cut back by $10 billion, there will still be a lot of 'QE' going into markets," he added, saying his preferred stocks included housebuilders due to signs of a UK economic recovery.
Strategists at U.S bank Citi also kept a longer-term positive view on the UK stock market. Citi maintained its end-2013 target for the FTSE 100 at 7,000 points and raised its end-2014 target to 8,000 points.
APS Alpha technical strategist Adrian Slack said that in a "worst-case scenario" - namely one in which the Fed scaled back its bond-buying programme by more than the $10 billion expected by investors - the FTSE 100 could fall back by 5 percent.
However, he said there would still be plenty of buyers looking to pick up stocks on any market fall, which would ensure any decline on the FTSE 100 would be relatively short-lived.
"I'd be very surprised if it would have a really negative effect on equities. There are plenty of buyers on the sidelines still waiting to come in," he said. (additional reporting by Tricia Wright; editing by Ron Askew)
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