Drop in Glaxo pressures Britain's FTSE 100

Thu Mar 20, 2014 8:20am EDT

* FTSE 100 down 1.1 pct

* Glaxo weak after cancer vaccine fails again

* Global stock markets hit by Fed rate guidance

* SSE boosted by MS upgrade; Next up after results

By Tricia Wright

LONDON, March 20 (Reuters) - Britain's top equity index fell on Thursday, hit by a drop in drugs group GlaxoSmithKline and a hint from the Federal Reserve that U.S. interest rates could rise sooner than previously expected.

The blue-chip FTSE 100 index, which rose 14.4 percent in 2013 and came close to a 13-year high in January, was down by 1.1 percent, or 69.76 points, at 6,503.37 points by 1159 GMT.

A 2 percent fall in GlaxoSmithKline took 6.5 points off the FTSE 100 after an experimental cancer vaccine from Glaxo failed in a second test.

The findings showed that Glaxo's MAGE-A3 therapeutic vaccine did not help patients with non-small cell lung cancer in a late-stage Phase III study.

"With a further read-out pending, we are not pinning much hope on the product," said Panmure Gordon analyst Savvas Neophytou, who kept a "hold" rating on Glaxo's shares.

Global stocks were also hit after new Federal Reserve head Janet Yellen said late on Wednesday that the U.S. central bank would probably end its massive bond-buying programme this autumn, and could start raising interest rates around six months later.

The UK benchmark's decline pushed it close to its lowest level since early February.

While many traders and analysts expect the FTSE 100 to reach a record high of 7,000 points later this year as the UK's economic recovery slowly strengthens, some were more cautious about the short term.

Barclays Capital analyst Lynnden Branigan said a close below last week's low of 6,500 could pave the way to a retreat to February's low of 6,416 points.

"I'd probably expect buyers to come in back around those lows, at 6,416," Branigan said.

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Energy supplier SSE bucked the weak market, rising 2.6 percent to top the FTSE 100 leader board, with traders citing the impact of a rating upgrade to "overweight" from "underweight" by Morgan Stanley.

"SSE is cheap versus peers ... The balance sheet is safe, we think dividends can be maintained even without energy supply profits, and EPS revisions have troughed. Capex reductions would be a positive," the investment bank said in a note.

SSE trades on a 12-month forward price/earnings ratio of 11.6 times, against Centrica on 13.2 times, according to Thomson Reuters StarMine "SmartEstimate", which favours top-rated analysts.

Clothing retailer Next, was the second-top riser, ahead 1.7 percent, after meeting guidance with an 11.8 percent rise in annual profit, fuelled by booming sales at its online business.

Some analysts, however, reckoned the scope for further gains in Next was limited, with the stock having jumped some 24 percent this year, against an advance of just 11 percent for the FTSE 350 General Retailers index.

"We view Next as a core holding, but with the shares valued at a premium to the sector, we believe the valuation is up with events," analysts at Investec Securities said in a note.

Next trades on a 12-month forward price/earnings ratio of 17.3 times, against Marks & Spencer on 13.3 times, and Debenhams on 9.8 times, StarMine SmartEstimate showed. (Additional reporting by Sudip Kar-Gupta; Editing by Susan Fenton)

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