* FTSE 100 down 0.5 percent
* Vedanta weak, traders cite Morgan Stanley downgrade
* FTSE 'fear gauge' at 1-month highs
By Tricia Wright
LONDON, Oct 9 Britain's top share index fell on
Wednesday for a third day running as the lack of progress on
efforts to resolve a U.S. budget stalemate took its toll on
Mining company Vedanta Resources was the standout
faller, off 4.4 percent, with traders citing a Morgan Stanley
downgrade as the catalyst. That offset strength elsewhere in the
sector, which makes up a large chunk of London's blue chips,
after aluminium producer Alcoa unveiled robust earnings.
The FTSE 350 Mining Index rose 0.1 percent.
The FTSE 100 was down 28.39 points, or 0.5 percent,
at 6,337.44 points by 0741 GMT, taking its decline this week to
Investors' focus remained squarely on a U.S. budget
stalemate that is well into its second week, with worries
centring around the prospect of a historic debt default being
triggered next week.
U.S. President Barack Obama said on Tuesday he would be
willing to negotiate budget issues with Republicans only if they
agree to re-open the federal government and raise the public
debt ceiling - crucial to avoid default - with no conditions.
The U.S. concerns have pushed the FTSE volatility index
, a crude gauge of investor fear, to one-month highs.
The index was up 4.4 percent on Wednesday.
Thin trading volumes suggest many investors have been
sidelined pending fresh developments in Washington. A third of
the way into October, volumes on the FTSE 100 were just over 20
percent of those for the whole of September.
"Everyone's getting more and more nervous as the deadline
gets closer. The rhetoric overnight wasn't terribly
encouraging," Ian Williams, equity strategist at Peel Hunt said.
"You can't really see investors having any great urgency to
get back in until we get a bit more clarity."
Technical analysts were downbeat on near term direction for
the index, which was trading well below its 200-day moving
average, now at 6,414.
"The near-term bearish trend can be confirmed," said Fawad
Razaqzada, market strategist at GFT Markets, who targets 6,100,
a previous level of support.
Stocks trading without the attraction of their latest
dividend, namely Aviva, Kingfisher, Smith &
Nephew, Tesco, Travis Perkins, Wolseley
and WPP shaved 3.72 points off the index on
(Reporting by Tricia Wright; editing by Patrick Graham)