REFILE-STOCKS NEWS EUROPE-Utilities fall as brokers begin to cut ratings

Thu Sep 26, 2013 6:23am EDT

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(sends to wider distribution network) Shares in British utilities Centrica and SSE fall for a second day as a plan by the opposition Labour party to freeze energy and gas prices if elected in 2015 continues to spook investors, prompting JP Morgan to cut its recommendation on Centrica to "neutral" from "overweight".

Centrica is the biggest faller on the FTSE 100 Index, down 2 percent in mid morning trading to add to the 5.3 percent fall it recorded on Wednesday. The group lost 1.1 billion pounds ($1.8 billion) from its market valuation on Wednesday.

The shares have fallen since opposition Labour leader Ed Miliband revealed his plan to freeze energy prices until 2017 to help consumers who have been hit hard in recent years by rising prices.

"Although there remains uncertainty surrounding the detail of the policies or whether Labour will even win the next election, we believe the risk level in the sector has now substantially increased," JP Morgan analyst Edmund Reid says in a note to clients.

The bank's analysts say it is difficult to assess the financial implications of a price freeze on utility firms because it depends on how the companies' retail cost bases, 85 percent of which are outside of their control, change.

"With the general election due in May 2015, and Labour currently ahead in the polls it is hard to see the uncertainty dissipating any time soon. In fact, with the companies likely to announce retail price rises in the next couple of months, we expect the volume of political rhetoric to rise."

Shares in SSE are down 1.7 percent, to add to the 5.8 percent - or 878 million pounds of value - it lost on Wednesday.

Reuters messaging rm://kate.holton.reuters.com@reuters.net

Reuters messaging rm://david.brett.reuters.com@reuters.net ($1 = 0.6224 British pounds)

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