Britain's FTSE drops as US debt crisis drags into new week

Mon Oct 14, 2013 3:59am EDT

* FTSE 100 down 0.1 percent

* Index rallied last week on hope of imminent US deal

* China data crimps miners

* JP Morgan ratings hurt Bunzl, Croda, help Johnson Matthey

By Alistair Smout

LONDON, Oct 14 (Reuters) - Britain's top share index gave back some of its strong gains of the past two sessions on Monday after U.S. politicians failed over the weekend to resolve Washington's debt crisis, while weaker data from China weighed on miners.

Britain's FTSE 100 was down 5.03 points, or 0.1 percent, at 6,482.16 by 0736 GMT, having added 2.4 percent over the previous two sessions on hopes that a deal to avoid a U.S. government default was imminent.

Although U.S. Senate negotiations to bring a fiscal crisis to an end showed signs of progress on Sunday, there were no guarantees the federal government shutdown was about to end or that a historic debt default would be avoided.

However, traders said the U.S. government still had some limited ability to fund itself beyond Thursday's deadline and this could cap falls even as that date neared.

"I don't think the 17th of October is the be-all and end-all and I'm not taking Thursday as Armageddon... but pressure is building on government to get something done," said Mike van Dulken, head of research at Accendo Markets.

"If we can't get back above recent October highs around 6,490, that could be back being resistance for the rest of the week until the next bout of optimism comes along."

Sectors that generally benefit from optimism over the global growth picture such as financials and basic materials combined to take 14 points off the index.

The weakest sector was miners, which shed 0.9 percent after data from China showed higher inflation that could limit options available to the government to support demand, while a surprise drop in Chinese exports broke a recent run of indicators that had signalled a strengthening economy.

Glencore Xstrata led miners lower, additionally suffering from a downgrade to hold from Liberum. Croda and Bunzl completed the list of the top three decliners after receiving downgrades from JP Morgan.

However, the investment bank had more positive words for Johnson Matthey, which climbed 4.5 percent to the top of the FTSE leadboard after JP Morgan upgraded the maker of catalytic converters to "overweight" from "neutral".

"Johnson Matthey is at an inflection point," analysts at JP Morgan said in a note.

"We expect years of investment in the industrial catalyst market to lead to accelerated growth, benefiting from the swathe of new customer capex driven by Chinese petrochemical self-sustainability and the U.S. shale gas revolution." (Additional reporting by David Brett; Editing by Gareth Jones)