* FTSE 100 closes up 0.3 percent
* Strong gains pared after projected divide in house control
* Sovereign downgrade could help FTSE - analysts
* Pearson falls on flat earnings expectations
By Alistair Smout
LONDON, Feb 25 UK shares shed all of their early
gains on Monday as projected Italian election results suggested
a clear-cut winner was unlikely to emerge, diminishing the
prospects for a stable government.
Early exit polls suggesting a healthy lead for a centre-left
coalition led by Pier Luigi Bersani in both houses of parliament
were confounded by projections based on early vote counts
suggesting that Silvio Berlusconi's anti-austerity centre-right
coalition was leading in the Senate.
Such a result would make a governing coalition difficult to
Britain's top share index lost one percent in under
an hour in afternoon trade, turning a 0.9 percent gain at its
peak shortly after 1500 GMT to a 0.2 percent fall at its trough
around 1600 GMT after the first projections showed a
centre-right majority in the Senate.
"The story of the afternoon is that sell-off after the
numbers showed that Berlusconi is doing well, and that's taken
the gloss off of what was a very strong day up to that point."
Johnny Keaney, sales trader at Knight Capital, said.
The market recovered to finish in positive territory, aided
by subsequent projection from IPR that said the centre-left was
ahead in the Senate race.
The FTSE 100 closed up 19.67 points, or 0.3 percent,
at 6,355.37, with initial gains being made on hopes of both
centre-left success at the Italian elections as well as further
monetary easing from Japan and the U.S.
Sectors which rise and fall with economic sentiment, such as
banks, miners and energy companies - the so-called "cyclical"
sectors - led gainers, combining to add 30 points to the index.
The rise came even though Britain lost one of its prized
triple-A credit ratings late on Friday when Moody's downgraded
Some saw the Moody's downgrade as paradoxically good for the
FTSE 100, as it placed downward pressure on sterling,
potentially helping UK exporters, as well as possibly improving
the case for a more supportive monetary policy.
"Data from FTSE 100 companies shows 27 percent of their
revenue comes from growth markets, which we define as Asia and
emerging markets in general," James Butterfill, Equity
Strategist at Coutts, said in a note.
"A weaker currency not only makes UK exports more
competitive, but also gives a greater boost to the UK than the
euro or US markets, which derive 21 percent and 12.3 percent of
their revenue from growth markets respectively. "
Berenberg Bank said the UK rating downgrade was likely to
mean slightly looser monetary and fiscal policy, which usually
Meanwhile, Citi affirmed an overweight position on UK banks,
seeing weak sterling as a positive for the sector and
highlighting the outperformance of French banks following a
sovereign downgrade late last year.
Banks gained 1.2 percent on the day.
British education and media group Pearson fell 3.7
percent, making it the heaviest faller on the FTSE 100, after
saying it expects this year's earnings to be flat.
Pearson also saw the largest volume traded, with over four
times its average 90-day volume traded by the close.
Reckitt Benckiser (RB) also fell in heavy volume,
losing 3 percent after the U.S. drugs regulator rejected its
call for stricter packaging for its heroin addiction treatment,
instead approving generic production for the drug.
(Editing by Toby Chopra)