Britain's FTSE hit by US data after touching three-week high

Thu Apr 3, 2014 11:41am EDT

* FTSE 100 falls 0.2 pct

* Weak U.S. data pegs index back after ECB

* Miners drop with copper on China stimulus disappointment

* Tullow Oil boosted by UBS upgrade (Updates with new prices, quotes)

By Alistair Smout

LONDON, April 3 (Reuters) - British blue-chip shares edged lower after testing a three-week high on Thursday, as the end of a two-week rally in mining shares offset gains by Tullow Oil.

The session proved volatile, however, with gains made in the afternoon after European Central Bank President Mario Draghi affirmed an easy policy stance evaporating after below-expectations U.S. data.

The British FTSE 100 gave up a 0.2 percent gain, which took it to its highest since March 12, to trade 0.2 percent lower at 6,649.14 at the close, tracking Wall Street into negative territory.

The weaker data came a day ahead of the closely watched U.S. non-farm payroll release, after new Federal Reserve chair Janet Yellen reiterated an easy monetary policy stance earlier in the week.

"The FTSE has followed Wall Street down today, as the latest bad news in manufacturing data was seen bearish," IG sales trader Will Hedden said.

"Going forward it is hard for investors to decide if this is going to remain the same, especially when you consider how dovish (Federal Reserve chair Janet) Yellen was earlier in the week."

Growth-sensitive mining stocks weighed on the market, with heavyweight copper miners such as Rio Tinto and Anglo American taking the most points off the index. The sector fell 0.8 percent after rising 6.8 percent over the last two weeks.

Copper prices weakened after Chinese stimulus measures fell short of expectations.

On the upside, Tullow Oil led risers with a 6.2 percent gain. Traders said the move came after UBS upgraded its rating on Tullow to "buy" from "neutral".

Kingfisher rose 3 percent after Europe's biggest home-improvement retailer began a 275 million euro ($378.6 million) takeover bid for France's Mr Bricolage, moving to strengthen its position in its most profitable market.

Analysts at Oriel Securities said the acquisition made strategic sense and the deal should help earnings in 2016.

The FTSE underperformed European equities, as it is less exposed to the euro zone, after Draghi said the ECB was ready to use unconventional instruments to avoid deflation.

While the FTSE had initially been supported by Draghi's words, it suffered from sterling's relative strength against the weaker euro.

"We might see some more pressure on sterling ... (so) hints toward more bond buying or other non-conventional easing measures would likely be a short term negative for the FTSE," said Atif Latif, director of Trading at Guardian Stockbrokers. But medium term prospects for the index still looked strong, he added.

($1 = 0.7263 Euros) (Additional reporting by Francesco Canepa; Editing by Catherine Evans)