* FTSE 100 down 0.6 pct
* Glaxo weak after cancer vaccine fails again
* Fed rate guidance weighs on market sentiment
* SSE boosted by MS upgrade; Next up after results
By Tricia Wright
LONDON, March 20 (Reuters) - Britain’s top equity index fell on Thursday, hit by a drop in drugs group GlaxoSmithKline and a hint from the Federal Reserve that U.S. interest rates may rise sooner than had been expected.
The blue-chip FTSE 100 index, which rose 14.4 percent in 2013 and came close to a 13-year high in January, fell 42.25 points, or 0.6 percent, to 6,530.88 points by 1532 GMT.
A 1.6 percent fall in GlaxoSmithKline knocked 5 points off the FTSE 100 after an experimental cancer vaccine from Glaxo failed in a second test. The findings showed Glaxo’s MAGE-A3 therapeutic vaccine did not help patients with non-small-cell lung cancer in a late-stage Phase III study.
“With a further read-out pending, we are not pinning much hope on the product,” said Panmure Gordon analyst Savvas Neophytou, who kept a “hold” rating on Glaxo’s shares.
Darkening the broader market mood, new Federal Reserve head Janet Yellen said late on Wednesday that the U.S. central bank would probably end its massive bond-buying programme this autumn, and may start raising interest rates around six months later.
The UK benchmark’s decline pushed it close to its lowest level since early February.
While many traders and analysts expect the FTSE 100 to reach a record high of 7,000 points later this year as the UK’s economic recovery slowly strengthens, some were more cautious about the short term.
Barclays Capital analyst Lynnden Branigan said a close below last week’s low of 6,500 could pave the way to a retreat to February’s low of 6,416 points.
“I’d probably expect buyers to come in back around those lows, at 6,416,” Branigan said.
Energy supplier SSE bucked the weak market, rising 3.1 percent to top the FTSE 100 leader board, with traders citing the impact of a rating upgrade from Morgan Stanley - to “overweight” from “underweight”.
“SSE is cheap versus peers ... The balance sheet is safe, we think dividends can be maintained even without energy supply profits, and EPS revisions have troughed. Capex reductions would be a positive,” the investment bank said in a note.
SSE trades on a 12-month forward price/earnings ratio of 11.6 times, against Centrica on 13.2 times, according to Thomson Reuters StarMine “SmartEstimate”, which favours top-rated analysts.
Clothing retailer Next was the second-best riser, up 2 percent after matching forecasts with an 11.8 percent rise in annual profit, fuelled by booming sales at its online business.
Some analysts, however, reckoned the scope for further gains in Next was limited. The stock has jumped some 24 percent this year, against an advance of just 11 percent for the FTSE 350 General Retailers index.
“We view Next as a core holding, but with the shares valued at a premium to the sector, we believe the valuation is up with events,” analysts at Investec Securities said in a note.
Next trades on a 12-month forward price/earnings ratio of 17.3 times, against Marks & Spencer on 13.3 times, and Debenhams on 9.8 times, StarMine SmartEstimate showed. (Additional reporting by Sudip Kar-Gupta; Editing by Larry King)