UPDATE 1-Britain's FTSE steadies in low volumes, retailers lag

Wed Dec 18, 2013 11:48am EST

* FTSE 100 up 0.1 pct

* Still eyeing first December fall in 11 years

* Retailers lag on Christmas sales concerns

By Toni Vorobyova

LONDON, Dec 18 (Reuters) - Britain's main equity index steadied in thin trade on Wednesday, with investors cautious before what is seen as a tight policy decision by the U.S. Federal Reserve, and with a sell-off in retailers putting a lid on any gains.

Strong U.S. data, including Wednesday's forecast-beating housing starts, has fuelled expectations that the Fed could scale back its equity-friendly stimulus as soon as this month. That in turn has weighed on global stocks.

As a result, Britain's FTSE 100 - whose companies make a quarter of their sales in the United States - has fallen for six weeks. That is its longest downward run since 2008 and leaves it on track for its first December loss in over a decade.

Nevertheless, most economists still do not expect the Fed to move before early 2014, and some investors cautiously bought back into the market on Wednesday ahead of the 1900 GMT announcement.

"If they taper, and that tends to be the minority view, ... I think the impact on equities will probably be a little more negative (than on bonds), simply because the equities markets haven't priced it in. They could go down 5 percent, I don't think we'll see much more than that," said Michael Hewson, senior market analyst at CMC Markets.

He said if markets went down, it would be a buying opportunity, as long as the Fed communicated its guidance well. "The whole point of tapering is that the economy's improving."

The FTSE 100 closed up 5.89 points, or 0.1 percent, at 6,492.08 points, its gains stunted by tough technical resistance around the 200-day moving average.

Subdued volumes, however, underscored investor caution, with activity on the index at just 81 percent of the 90-day average.

Centrica was a top gainer, up 2.8 percent after the energy company said it would sell its Texas gas-fired power stations and use the money to extend its share buyback.

However, the London benchmark lagged gains on other European bourses, due to its higher U.S. exposure and because of a steep sell-off in British retailers.

Broker notes raised concerns about the strength of Christmas sales and highlighted Kantar data showing major supermarkets losing market share to discount grocers.

"The retailers seem to be struggling a bit with fears over Christmas shopping, we've all seen the discounts out there," said James Humphreys, deputy head of research at Duncan Lawrie Private Bank. "We think retail in general is a difficult place to invest at the moment, and you need to be very stock-specific just because consumer habits are changing so rapidly."

Sainsbury dropped 3.6 percent and Tesco lost 1.7 percent. Marks & Spencer fell 2.4 percent, also hit by analysts at UBS downgrading the stock to 'neutral' from 'buy' and forecasting lower gross margins.

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