* FTSE 100 down 0.5 pct
* Lags peripheral shares as pound strengthens vs euro
* M&S boosted by food sales growth, bucks falls for peers
* William Hill hit by threat of government regulation
By Francesco Canepa
LONDON, Jan 9 Britain's FTSE 100 fell on
Thursday and underperformed shares in sourthern Europe, as a
rise in the pound against the euro hampered prospects for the
index's exporters and most retailers fell after weak Christmas
The FTSE erased gains in the afternoon as the pound rose to
its highest in a year against the euro on the back of a European
Central Bank pledge to keep rates very low.
Investors bet the Bank of England and the ECB would pursue
diverging monetary policies, meaning British blue chip
companies, which derive around a quarter of their sales from
Europe, may find it more difficult to export to the euro zone.
"I can certainly see sterling continuing to strengthen in
the coming months," said Craig Erlam, an analyst at Alpari.
"Whether it's going to push the FTSE further down or just
limit its potential to rally, it's probably going to be the
latter, but it's definitely going to be detrimental."
The FTSE 100 was down 30.73 points, or 0.5 percent, at
6,691.05 points at 1605 GMT, breaking below the 6,700 mark in
the afternoon as U.S. stocks fell.
The index has risen just 4 percent in the past six months,
three times slower than the STOXX Europe 600. That
compared with a nearly 30 percent rally in Spain's IBEX
as investors sought exposure to a nascent recovery in the euro
zone periphery at lower valuations.
Shares in the MSCI UK index trade at twice their book value,
a 60 percent premium to Spain and more than twice Italy's
multiple, Datastream data showed.
"As long as we start to see earnings start improving in the
periphery I expect that trend to continue this year," said
Nicolas Simar, head of the equity value Boutique at ING
Shares in Marks & Spencer rose 3.5 percent after the
upmarket retailer reported organic growth in food sales in the
Christmas quarter, offsetting weakness in its clothes business,
which reported a 10th consecutive quarter of falling sales.
The stock, which is still down some 12 percent from a
five-year high hit in September, outperformed steep share price
falls at larger food retailers WM Morrison and Tesco
, which reported like-for-like quarterly sales drops on
"The trend in the food market is being very much towards the
top-end and value-end outperforming the big four, and certainly
the results over Christmas have confirmed that trend is
continuing," Investec analyst Kate Calvert said.
"With Marks & Spencer, there is a lot of bad news already in
the share price and given that there are fundamental changes
going on in the business model, which we will start to see over
the next couple of years, I don't think that's factored into the
valuation," added Calvert, who upgraded M&S to "buy" from "hold"
Rivalling the retail fallers was William Hill, down
7.4 percent. It was downgraded to equal weight from overweight
by Barclays after Britain's parliament debated fixed-odds
betting terminals and did not rule out restricting them.
"Regulatory change has always been the key driver of
sentiment toward the gambling sector. Yesterday the Labour Party
called for greater regulation of the gambling industry in the
UK," analysts at Barclays said in a note.
"We stress that there has been no change to regulation but
we expect that this negative news-flow will weigh on the sector
... In the absence of clarity, we downgrade William Hill."