Britain's FTSE 100 edges up before Fed, Centrica leads

Wed Dec 18, 2013 7:13am EST

* FTSE 100 up 0.2 pct

* Still eyeing first December fall in 11 years

* Centrica leads gainers, retailers lag

By Toni Vorobyova

LONDON, Dec 18 (Reuters) - Britain's main equity index crept up in low volumes on Wednesday, with Centrica cheered by plans for a share buyback but with broad sentiment cautious ahead of a key policy decision from the U.S. Federal Reserve.

Strong U.S. data has raised expectations that the Fed could scale back its equity-friendly quantitative easing 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 the past six weeks in its longest down run since 2008, and is on track for its first December loss in over a decade.

But, with most economists still not expecting the Fed move before early 2014, some investors cautiously bought back into the market on Wednesday ahead of the 1900 GMT announcement.

"It all rests really on what happens after the market closes with the Fed announcement on QE tapering, and I think it's pretty finely balanced," said James Humphreys, deputy head of research at Duncan Lawrie Private Bank.

"Markets aren't particularly cheap, so an unwinding of QE could see a bit of de-rating of the market," he added, while noting that if there is no move from the Fed the markets could stage a year-end rally.

"It's almost 50-50 at the moment which way it goes."

The FTSE 100 was up 14.55 points, or 0.2 percent, at 6,500.74 points by 1148 GMT, its gains stunted by tough technical resistance around the 200-day moving average.

Centrica was the 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.

"As we have long advocated, an extension of the share buy-back scheme - especially at the current prices - could bring better shareholder returns," analysts at Liberum Capital said.

On the downside, retailers were among the top fallers as broker notes raised concerns about the strength of Christmas sales and highlighted Kantar data showing major supermarkets losing market share to discount grocers.

"I have real money account exiting long positions in large size, with orders dominated in Sainsbury's," said Jordan Hiscott, senior trader at Gekko Global Markets.

"Importantly, they have just broken through the 200 daily moving average ... for a conclusive sign this isn't just initial market over-reaction or 'noise'. I'm looking for a close below this level."

Sainsbury dropped 3.1 percent and Tesco lost 2.0 percent. Marks & Spencer fell 3.8 percent, also hit by analysts at UBS downgrading the stock to 'neutral' from 'buy' and forecasting lower gross margins.

"We prefer exposure to the electricals/hardlines stocks over the Christmas period as high levels of promotion and consumer preference for bargains looks to be creating a recipe for disappointment amongst the clothing retailers," they wrote.