* FTSE 100 flat at 6,556.95
* Investors eyeing Fed stimulus wind down in October
* AMEC knocked by UBS downgrade to “neutral”
By David Brett
LONDON, Sept 24 (Reuters) - Britain’s top shares treaded water on Tuesday as investors looked for a catalyst to drive the next leg of the equity rally, but confusion over Federal Reserve monetary policy continued to stifle gains.
By 0710 GMT, the FTSE 100 was flat at 6,556.95 having dipped 0.6 percent in the previous session, but still just 3 percent off 13-year highs back in May.
After an initial spike in equities, the Fed’s decision last week not to scale back stimulus has left more question marks over the central bank’s monetary policy outlook, meaning many investors are unwilling to make heavy bets with most European markets at or near multi-year highs.
“Markets are treading water at the moment with investors remaining cautious over whether the Fed will scale back its stimulus measures,” Mark Ward, head of trading at Sanlam Securities.
“We feel tapering in October is likely, with the Fed not wanting to miss the rare opportunity of being able to reduce stimulus measures while not causing instability and hefty volatility in the markets.”
Fed speakers on Monday added to the confusion by saying there probably was not enough data to taper at the next meeting, contradicting what St. Louis’ Fed president James Bullard said on Friday.
With the macro outlook murky, technical analysts said the FTSE 100 was likely to remain in a tight range with key resistance at 6,606 and support of 6,479.
In a quiet early session, oil and gas-focused engineer Amec fell 1 percent after UBS cut its rating to “neutral” from “buy”.
“While we like the asset-light business model, we worry about the underlying slowdown in activity in Amec’s end markets ... We think the underlying earnings momentum, excluding the effect of acquisitions, is likely to turn negative in the near term,” the investment bank said.
Oliver Pfeil, portfolio manager, global equities, at Deutsche Asset & Wealth Management, which has about 1 trillion euros ($1.35 trillion) in assets under management, said a pick up in corporate earnings could be the driver of the next leg of the equity market rally.
“The market has been driven by multiple expansion so far, now it has to be driven by earnings expansion, and this will be a much slower process,” he said.
Insurer and Autos are the only sectors with positive earnings momentum, according to Thomson Reuters Datastream, with basic resources mired deep in downgrade territory and all other sector still in gradual decline. (Reporting by David Brett)