FTSE creeps up in thin trade, Johnson Matthey leads
* FTSE 100 up 0.3 percent; trading volumes thin
* Johnson Matthey rises on bullish JPMorgan note
* RBS falls on broker downgrade, U.S. sale talk
By Tricia Wright
LONDON, Oct 14 (Reuters) - Britain's FTSE inched higher on Monday, led by catalytic converter maker Johnson Matthey on the back of an analyst rating upgrade, with slow progress to head off a U.S. debt default keeping a check on broad market gains.
Johnson Matthey rose 5.6 percent as traders cited an upgrade from JPMorgan to "overweight" from "neutral". "Johnson Matthey is at an inflection point," JPMorgan said, seeing potential upside of 35 percent to the current price.
"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."
The FTSE 100 had risen 19.52 points, or 0.3 percent, to 6,506.71 points by 1429 GMT, having climbed 2.4 percent in the previous two sessions.
Although the market advanced, there was a strong undercurrent of anxiety as reflected in the FTSE volatility index, a crude gauge of investor fear, which jumped 8.9 percent, its biggest one-day percentage rise in two weeks.
Thin trading volumes, meanwhile, suggested many investors were sidelined pending fresh developments in Washington. The FTSE 100 has traded just 40 percent of its 90-day daily average.
U.S. Senate negotiations to bring a fiscal crisis to an end showed signs of progress on Sunday, but there were no guarantees the federal government shutdown was about to end or that a historic debt default would be avoided.
"There is little appetite for risk at the moment until investors have some concrete idea of how this is going to play out," Richard Hunter, head of equities at Hargreaves Lansdown, said.
"We will almost certainly have a sharp relief rally should the situation be resolved but of course that's not where we are at the moment and the nearer we tick to Thursday nervousness, without a question, is going to increase."
Congress has until Oct. 17 to raise the debt ceiling, or risk defaulting.
Charles Stanley technical analyst Bill McNamara, while envisaging a rise of around 200 points on the FTSE 100 should a deal be clinched, also cautioned against further nervous trading in the near term.
"If no agreement is reached by Thursday, a re-examination of last week's lows (6,316) looks all too likely," he said.
Downbeat analyst comment weighed on Royal Bank of Scotland on Monday, off 1.8 percent, knocked by a downgrade to "underperform" by BofA Merrill Lynch.
Traders also pointed to weekend newspaper talk that Canada's Toronto-Dominion Bank is considering an 8 billion pound ($12.8 billion) bid for RBS's American retail banking business Citizens as a catalyst for the share price move.
"8 billion is undervaluing the business ... If that was the price then RBS would most definitely be better off partially IPO-ing and getting a bit of the future upside," Mike Trippitt, analyst at Numis Securities, said.
"It is just a rumour; it is by no means a done deal, but in my eyes it would be undervaluing the business for sure." (editing by Ron Askew)