* FTSE 100 up half a point, remains above 6,000
* Momentum wanes as investors focus on U.S. outlook
* Banks, commodities stall after previous session's gains
* Compass drops after Espirito downgrade
* Retailer Next rallies after lifting profit guidance
By David Brett
LONDON, Jan 3 Britain's FTSE 100 consolidated
recent gains early on Thursday after it had smashed through the
6,000 level for the first time in 17 months in the previous
By 0851 GMT, London's blue-chip index was up 0.54 of
a point at 6,027.91. It hit its highest level since July 2011 on
Wednesday after the United States secured a deal to stave off a
series of tax hikes and spending cuts that threatened economic
The agreement, however, only delayed even bigger budget
battles and potentially sets up further bruising showdowns over
the next two months on spending cuts and an increase in the
nation's limit on borrowing.
"The rally seems to have been somewhat overdone and we would
expect some pull-back," Securequity sales trader Jawaid Afsar
"Short term we remain bullish but medium term, ahead of debt
ceiling discussions in the U.S., we are more cautious as this is
a larger issue to tackle and one which faces possible downgrades
from debt agencies," he said.
Afsar said some areas of the market were beginning to look a
little overbought including banks and miners
, which led the fallers on Thursday, while oils
, another of the previous session's big risers, also
Deutsche Bank said investors need to get used to a FTSE
above 6,000 again and targeted 6,575 for the end of 2013, but
with markets already at multi-month highs strategists suggested
investors will need to become more picky in their stock
selections in the coming year.
"In our view, an old-fashioned focus on virtues such as
long-term investment in well-managed companies with strong
cash-flow and sustainable growth is not 'risky' but the safest
option available," Max King, strategist in the Investec Asset
Management Multi-Asset team, said in a note.
Services firms suffered contrasting fortunes as Compass
Group, the world's biggest caterer, became the main
individual faller, down 2.1 percent after Espírito Santo
Investment Bank cut its rating on the company to "neutral" from
"buy", citing valuation grounds.
"We now believe the rating encapsulates the near-term
opportunity. Cyclical pressure in Europe will limit organic
growth and impede earnings progression through 2013, despite
accelerated efficiencies," Espirito said in a note.
Compass Group trades on a forward 12-month price-to-earnings
smart estimate of 15.6 times, 10 percent higher than its
historical average, according to Thomson Reuters Starmine Data.
Conversely, Espirito upgraded its rating on British
outsourcer Serco to "buy" from "neutral" saying the
relative share price underperformance through 2012 has created
an unwarranted valuation discount to peers.
Serco was up 1 percent, having fallen 8.5 percent in the
last three months of 2012, compared with a 1.2 percent decline
for peer Capita and 3.8 percent rise on the FTSE 100.
On the upside, Next gave a boost to the retailers
and rose 2.7 percent after the fashion firm met fourth-quarter
sales forecasts and lifted annual profit guidance, in a strong
start to the festive trading update season.
Next's earnings quality score rose to 100 from 95 after its
previous filing in June, which suggests the composition of
earnings in the recent past is robust enough for its growth rate
to be sustainable, according to Thomson Reuters Starmine data.
Next remains the darling of the retailers among investors
having gained 85 percent in the last two years.
(Editing by Stephen Nisbet)