FTSE falls further away from 14-yr peak, Barratt slips

Fri May 16, 2014 8:07am EDT

* FTSE 100 down 0.2 percent by midday trade

* House builders under pressure, Barratt down

* Retailers advance, Wm Morrison leads sector

By Atul Prakash

LONDON, May 16 (Reuters) - Britain's top share index slipped further away from a 14-year high on Friday, with homebuilders falling on concerns that soaring house prices could prompt authorities to introduce some cooling measures.

Barratt Developments, the country's biggest housebuilder by volume, fell 5.3 percent to top the decliners' list on the FTSE 100 index, while Persimmon was down 3.6 percent.

"Investors are watching house prices, which have risen quickly. The Bank of England is clearly monitoring the situation and could take some action to stop the situation turning into a bubble," Keith Bowman, analyst at Hargreaves Lansdown, said.

Britain's housing market has made a swift recovery from the global financial crisis, with prices up about 10 percent in the past 12 months.

Expectations are growing the central bank may try to prevent a housing bubble by tightening standards for mortgage lending. Speculation is rife that the BoE's Financial Policy Committee will toughen lending rules when it meets on June 17.

Weaker house builders, along with a drop in mining shares on growth concerns in countries such as China, dragged the FTSE 100 index lower from this week's 14-year high. The UK mining index was down 1.8 percent, with investors switching to defensive stocks.

The FTSE 100 index was down 0.2 percent at 6,826.41 points by 1131 GMT, having dropped 0.6 percent in the previous session, taking its cue from Wall Street which sold off after results from Wal-Mart disappointed and as small-cap shares extended their retreat.

The UK small cap index was down 0.7 percent, while the mid-cap index fell 1.9 percent. Underperforming the wider market.

However, losses were capped by strong performance by individual firms. Retailers, often seen as defensives, were up. Wm Morrison rose 4 percent, followed by Sainsbury , 2.3 percent firmer, and Tesco, up 2 percent.

Morrisons' advance was helped by mounting speculation that a U.S.-led private equity consortium was weighing a bid for the company, traders said, with the Daily Mail's market report noting talk of a possible 6.4 billion pound ($10.8 billion), or 275 pence a share, cash offer. Morrisons declined to comment.

The sector built on gains seen in the previous session when there was a strong bias towards defensive stocks, which often lag when markets rise, supporting a view that the good times will not roll for long.

Frothy valuations are stopping investors from putting more money to work in equities. The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.7 times, against its 10-year average of 11.7 times, Thomson Reuters Datastream shows.

"The recent defensive rotation in equity markets underscores our view that the wider risk-on rally now looks tired," Graham Bishop, senior equity strategist at Exane BNP Paribas, said. (Additonal Reporting by Tricia Wright; Editing by Toby Chopra)