December 4, 2012 / 12:55 PM / 5 years ago

UK shares gain on more upbeat view on euro zone

* FTSE 100 up 0.1 percent

* Underperforms peers as domestic growth concerns weigh

* Financials, defensives lead index up

* Tullow Oil the biggest faller after it drills a dry well

By Alistair Smout

LONDON, Dec 4 (Reuters) - UK shares edged higher on Tuesday reflecting a brighter view of euro zone developments in Spain and Greece, though the UK lagged European peers after a disappointing construction survey.

At 1140 GMT, the FTSE 100 index was up 6.48 points, or 0.1 percent at 5,877.72, recovering from a morning low of 5,852.88.

“We’re starting to see some movement in the euro zone, around Greece and Spain, and Germany are playing ball now. There’s too much optimism to outweigh the gloom currently, and people are grabbing on to that,” said Mike McCudden, head of retail derivatives at Interactive Investor.

The mood concerning the euro zone periphery has benefited from optimism over Greece’s plan to buy back debt and Spain’s formal request on Monday for an EU bank bailout.

Madrid’s move came a day after Prime Minister Mariano Rajoy said he would “not have any doubts about turning to the ECB” in the future to seek help for Spain itself if he thought it was in the nation’s interests.

“I think the main underlying news is market anticipation of Spain requesting a bailout over the next few weeks,” McCudden said.

While the FTSE was able to reverse early falls, it lagged European peers, with the French CAC 40 adding 0.7 percent and the German DAX gaining 0.3 percent.

“It’s a rather broad-based reversal, partly predicated upon some spill-over strength after a firm opening in Europe,” said Jack Pollard, analyst at Sucden Finance.

“Today’s construction Purchasing Managers’ Index(PMI) is weighing though, with the FTSE underperforming.”

British construction activity shrank last month, after growing in October, and confidence about the year ahead fell to its lowest in almost four years, according to Markit’s latest PMI survey.

UK growth in the next two years will be weaker than previously thought, held back by a global slowdown and domestic austerity measures, the British Chambers of Commerce said on Tuesday.

While financials added 3 points to the index, buoyed by an improved mood over Europe, in general stocks seen as resilient to economic uncertainty prospered, with consumer staples alone adding 4.4 points.

Sectors that are sensitive to economic optimism suffered, hit by concerns about domestic growth. Energy took 4 points off the FTSE 100 in total.

Tullow Oil was the biggest faller on the index, shedding 5.5 percent after announcing that it did not find any commercial hydrocarbons having completed drilling at an offshore well in French Guiana. (Editing by Stephen Nisbet)

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