UK housebuilder falls cap FTSE 100 gains

Thu Nov 28, 2013 8:01am EST

* FTSE 100 up 6.28 points at 6,655.75

* Housebuilders down as BoE refocuses FLS scheme

* Rio tops risers on cost-cutting plans

* Europe exposure hurts Wolseley, Compass

* U.S. closed for Thanksgiving holiday

By David Brett

LONDON, Nov 28 (Reuters) - Britain's FTSE 100 lagged its European peers on Thursday, with gains curbed by a sharp retreat among housebuilders after the Bank of England unexpectedly scaled back a scheme to boost mortgage lending.

A rally in heavyweight Rio Tinto kept the blue-chip index in the black as investors welcomed the miner's plans to cut costs by $3 billion, but by far the highest volumes came from the under pressure housebuilders.

Persimmon shed 6.7 percent in double its average daily volumes after Governor Mark Carney said the BoE would refocus the Funding for Lending scheme on loans to small firms in the face of rising house price inflation.

FTSE 250 peers Taylor Wimpey and Bovis Homes fell 6.2 percent and 4.8 percent respectively as investors fretted about the change in the scheme which had contributed to a rebound in the housing market and helped UK housebuilders rise around 70 percent in 2013.

"I would be selling on (housebuilder) rallies now as a short/medium-term top is now in place on these comments," Basil Petrides, trader at Hartmann Capital, said.

The broader FTSE 100 100 inched up 6.28 points, or 0.1 percent, at 6,655.75, by 1244 GMT, boosted by a 3 percent rally in Rio as well as by broadly positive sentiment after fresh record highs on Wall Street.

But the index lagged the 0.2 percent increase on the euro zone's EuroSTOXX 50, dragged down by the housebuilders and by cautious outlooks from other sectors.

Kingfisher tumbled 5.0 percent after Europe's biggest home improvements retailer posted third-quarter profit at the lower end of forecasts and cautioned that markets remained tough, particularly in France.

"If you are anything to do with France, like Kingfisher, then you've got an issue," said Gerard Lane, strategist at Shore Capital.

"I think the aggregate euro area will struggle, there is no evidence of economic recovery. It might have stopped going down at the rate it was going down before, but that doesn't mean it's going to start growing."

Plumbing supplies group Wolseley and the world's biggest catering company Compass Group also both warned of tough conditions in Europe. Their shares fell 1.8 and 0.9 percent, respectively.

Citigroup also cut its rating on Compass to "neutral" on valuation grounds.

Imperial Tobacco and British American Tobacco fell on media reports that the UK government is set to announce a review of cigarette packaging in an effort to deter youngsters from smoking.

Overall volumes on the FTSE were relatively light, at just a third of the 90-day daily average around mid-session, with U.S. investors on holiday.

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