Weak utility stocks keep lid on UK's FTSE

Mon Feb 10, 2014 6:51am EST

* Energy Secretary's comments hit Centrica and SSE

* Falls in Centrica and SSE take most points off FTSE

* FTSE 100 flat in mid-session trading

* Regulators need to probe utility industry-Ed Davey

By Sudip Kar-Gupta

LONDON, Feb 10 (Reuters) - Fresh political pressure on Britain's utility industry hit the sector's stocks and weighed on the UK's top equity index on Monday.

The blue-chip FTSE 100 index was flat at 6,572.83 points in mid-session trading, with declines in major utility stocks taking the most points off the index.

The utility sector was hit after British Energy Secretary Ed Davey wrote to regulators to say the profit margins of major energy companies' gas supply units were too high.

Davey also said British Gas may have to be broken up, and his comments knocked shares in the sector, with British Gas owner Centrica falling 3.1 percent and rival utility SSE declining by 1.2 percent.

Utility stocks are often favoured by investors for their solid dividend yields, but Cavendish Asset Management fund manager Paul Mumford said political pressures on the sector were turning him away from holding those stocks.

"I don't bother to hold them because you're up against all these political headwinds," said Mumford.

"There are other areas of the market where you don't have the same amount of regulatory interference," added Mumford, who said his preferred UK equity sectors include oil and gas, and property.

The FTSE 100 rose 14.4 percent in 2013 to post its best annual gain since 2009.

However, the FTSE has fallen nearly 3 percent since the start of 2014 as global equity markets fell due to concerns over a slump in emerging markets economies.

Hantec Markets analyst Richard Perry said the FTSE had to recover back to the 6,645 point level - which marked a peak level in late January before the FTSE had a sell-off - in order to convince investors it was ready to resume an upwards trend.

"The technical outlook for the FTSE is pretty middle-of-the-road for now," said Perry.