FTSE weakens, investors jittery as U.S. debt deadline nears

By Tricia Wright

LONDON (Reuters) – Britain’s top share index gave back some of its recent strong gains on Wednesday, with investors anxious after talks in Washington failed to result in a deal to avert a U.S. debt default as the October 17 deadline loomed.

The FTSE 100 was down 15.15 points, or 0.2 percent, at 6,533.96 points by 0741 GMT, having risen 0.6 percent on Tuesday when it notched up its fourth successive day of gains. Miners led losses, off 0.9 percent, as investors sold out of cyclical shares.

U.S. Senate leaders were still discussing a deal late on Tuesday aimed at raising the debt limit and reopening federal agencies that have been closed for two weeks. Senate aides said an agreement was close.

Fitch Ratings warned on Tuesday that it could cut the United States’ prized AAA credit rating.

The UK benchmark has proved resilient in the face of the U.S. concerns. Despite Wednesday’s falls, it is still trading around its highest levels since September 27, which was before the political deadlock that partially shut down the U.S. government.

“Interesting day today with the U.S. debt ceiling debate going to the wire. The market has shaken off its initial fears and has not much room for disappointment,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million in assets.

Thin trading volumes suggest many investors are sticking to the sidelines pending fresh developments in Washington. Halfway through the month, the index has traded just over a third of the volume seen for the whole of September.

Charles Stanley technical analyst Bill McNamara said that if the impasse continues throughout the rest of the day, the FTSE 100 could relinquish some of the 3.3 percent advance seen over the previous four days.

“In the unlikely event that the U.S. government slides into default … a revisit of the recent lows (at 6,317) look(s) entirely possible,” he said.

Capita was among the top fallers, with a 1.3 percent drop, extending weakness from the previous session when it was announced that Invesco Perpetual UK equities fund manager Neil Woodford would leave the company after 25 years.

Although Woodford, who will be replaced by Mark Barnett, is not due to leave the company until April 2014, stocks in which his fund has a major holding have weakened on worries that positions could be scaled-back.

Investors were eyeing UK unemployment data, set for release at 0830 GMT, with the numbers now back in focus as the Bank of England under new governor Mark Carney has linked a fall in jobless figures to any future rise in interest rates.

(Editing by Catherine Evans)

FTSE weakens, investors jittery as U.S. debt deadline nears