* FTSE closes flat at 6,605.30 points
* FTSE falls below 50-day moving average level
* Lloyds drops 4.9 pct, takes most points off FTSE
* Standard Life surges 7 pct on Ignis deal
By Sudip Kar-Gupta
LONDON, March 26 Shares in British bank Lloyds
plunged 4.9 percent on Wednesday after the government
sold a stake in the lender at a discount to its stock price, and
held back the UK's blue chip equity index.
The FTSE 100 index, which at one stage rose as much
as 0.6 percent, ended up by just 0.41 points, flat in percentage
terms, at 6,605.30 points.
The weakness at Lloyds, after the British government sold a
4.2 billion pound ($7 billion) stake in the bank at a 4.6
percent discount to Lloyds' closing share price on Tuesday, took
the most points off the FTSE 100.
Simon Gergel, UK equities portfolio manager at Allianz
Global Investors, said Lloyds' growth potential looked weak
compared to rival HSBC, which is more exposed to
fast-growing Asian economies.
"The growth prospects for Lloyds in the UK are limited as
the economy is mature and we believe that low interest rates and
high levels of consumer and government debt will restrain
economic growth and the demand for further credit," said Gergel.
Traders said the FTSE 100's drop below its 50-day moving
average - which stands at around 6,637 points - had also caused
the index to give up its earlier gains.
Traders often use an index's slide below the 50-day moving
average as a sign of further near-term weakness to come, and a
cue to sell.
STANDARD LIFE SURGES
Lloyds' decline overshadowed a recovery in insurance stocks.
The insurance sector fell sharply last week after the
British government scrapped a requirement that pensions savings
should be used to buy an annuity, dealing a potential blow to
insurers' future profits.
However, the sector recovered on Wednesday, led by Standard
Life which surged 7 percent to top the FTSE's leaderboard on the
company's takeover of Ignis Asset Management.
"The insurers got hit last week by the new pension
arrangements, but we're now seeing them recover. The Ignis deal
does help Standard Life strengthen its grip on the UK market,"
said Edmund Shing, global equity fund manager at BCS Asset
Although many investors expect the FTSE to hit a record high
of 7,000 points later this year, Logic Investments' director
Darren Easton felt near-term gains for the index were limited.
The FTSE, which rose 14.4 percent in 2013 to post its best
annual gain since 2009, has failed to break above the 6,900
point level so far this year and is down by around 2 percent
since the start of 2014.
Easton said he had bought positions in the FTSE for clients
last week at the 6,560-point level but had started to trim back
those holdings at the 6,640 level.
"We're not saying we're not going to go any higher, but
we're just reducing our risk on the upside," he said.
($1 = 0.6037 British pounds)
(Additional reporting by Francesco Canepa; Editing by Sonya
Hepinstall and Susan Fenton)