FTSE flat as Rio Tinto offsets weakness in banks

                                
* Rio Tinto says to cut jobs, slash spending; stock surges
                                
 * Banks fall; analysts say banks face more bad debt pain
* UK economy shrank by 1 pct in 3 mths to Nov -NIESR
                                
 By Dominic Lau
                                
 LONDON, Dec 10 (Reuters) - Britain's FTSE 100 <.FTSE> was
flat by midday on Wednesday, as banks fell on concerns of more
profit and bad debt pain ahead, offsetting gains in miners led
by Rio Tinto <RIO.L>, which unveiled a plan to cut jobs.
                                
 By 1126 GMT, the FTSE 100 <.FTSE> was up 2.8 points, or 0.1
percent, at 4,384.06, after gaining 8.4 percent in the previous
two sessions. The UK benchmark is still down 32 percent for the
year on fears of a long and painful recession.
                                
 "We are basically trading in a 10 percent range on the FTSE
100... since October 10," said Tom Hougaard, chief market
strategist at City Index Markets.
                                
 "The next 10 to 15 trading days will give us resolution one
way or another if we are going to have a rally into March next
year or head lower again back to 3,000," he said.
                                
 Rio Tinto led the mining sector higher after the miner,
saddled with nearly $40 billion in net debt, announced plans to
cut 14,000 jobs, slash capital spending and boost asset sales as
it battles a collapse in commodity markets.
                                
 Firmer metal prices also boosted the mining sector.
                                
 Rio surged 12.2 percent, while BHP Billiton <BLT.L>, Anglo
American <AAL.L>, Xstrata <XTA.L>, Vedanta Resources <VED.L>,
Antofagasta <ANTO.L>, Eurasian Natural Resources <ENRC.L> and
Kazakhmys <KAZ.L> rose between 2.2 percent and 6 percent.
                                
 Energy stocks firmed as crude prices <CLc1> traded above $43
a barrel. Royal Dutch Shell <RDSa.L> gained 1.4 percent and BG
Group <BG.L> added 2.3 percent.
                                
 Banks, however, weighed heavily on the index. Credit Suisse
said Europe's banks could see profit wiped out next year and in
2010 and may need to raise another 42 billion euros as a recent
deterioration in economic conditions showed no sign of improving
soon.
                                
 The broker said European unemployment could rise 20 percent
next year and it is possible that bad debts will approach levels
of the early 1990s. 
                                
 Lloyds TSB <LLOY.L> was one of the broker's least favourite
banks.
                                
 Lloyd's eased 0.2 percent, while Barclays <BARC.L>, HSBC
<HSBA.L>, Royal Bank of Scotland <RBS.L> and Standard Chartered
<STAN.L> were off between 1.8 and 4.7 percent.
                                
 Britain's economy shrank by a full percentage point in the
three months to November and the pace of contraction looks set
to accelerate into the end of this year, the National Institute
of Economic and Social Research said in its monthly assessment.
                                
 The think tank revised its GDP estimate for the three months
to October to show a decline to 0.8 percent, having originally
estimated a contraction of 0.5 percent. [ID:nL9307812]
                                
 "We had some good days recently ... essentially I still see
that as a dead cat bounce. We've still got some torrid days to
come," said Howard Wheeldon, senior strategist at BGC Partners.
                                
 Across the Atlantic, the White House and Democrats are near
a deal on a rescue for the battered U.S. car industry.
                                
 XMAS STOCKINGS
                                
 Retailers took a beating on fears that Christmas sales this
year could be the worst in many years.
                                
 "Many retailers have entered the crucial Christmas selling
period with too much stock ... We believe that profitability
will come under significant pressure from both lower sales and
higher discount -- a dangerous combination when coupled with 2-3
percent cost inflation," Morgan Stanley said in a report.
                                
 "Marks & Spencer, Kesa and DSG International are most likely
to disappoint."
                                
 Marks & Spencer sank 5 percent and Next <NXT.L> shed 4.2
percent and mid-cap Kesa Electricals <KESA.L> dropped 4.8
percent. DSG International <DSGI.L>, however, soared nearly 14
percent after Nomura raised its rating to "buy" albeit with a
lowered price target reflecting cuts to estimates.
                                
 The latest quarterly FTSE indexes reshuffle will be
announced after the market close, based on Tuesday's closing
prices, and traders expect Stagecoach <SGC.L>, Lonmin <LMI.L>,
Fresnillo <FRES.L>, John Wood Group <WG.L> and Petrofac <PFC.L>
to exit the blue-chip index.
                                
 Tate & Lyle <TATE.L>, Serco <SRP.L>, Randgold Resources
<RRS.L>, Amlin <AML.L> and Home Retail <HOME.L> are expected to
be promoted to the top-flight.
  (Editing by Mike Nesbit)