* Defensive stocks fall on profit taking
* Miners, energy heavyweights retreat after heavy gains
* U.S. housing starts, Fed meeting eyed
* Banks move into positive territory
By Farah Master
LONDON, March 17 (Reuters) - Britain's leading share index
fell 0.8 percent by midday on Tuesday as energy heavyweights
retreated and investors took profits on defensive stocks after
recent gains, although banks were mostly up after early losses.
By 1149 GMT the FTSE 100 index <> had fallen 31.16
points to 3,832.83, after closing 2.9 percent higher on Monday
for its sixth gain in seven sessions.
The FTSE gained 6 percent last week buoyed by a slight
recovery in sentiment on the outlook for the financial sector,
but there was little to give the market clear direction.
"We have had a few days of positive moves and now the
markets are looking for a catalyst for the next direction," said
Tim Whitehead, strategist at Redmayne-Bentley. "At the moment I
think we will just tread water for a while after the good rally
that we've had."
Jitters on the demand outlook resurfaced ahead of U.S.
housing starts data, which is due at 1230 GMT and expected to
show a 16.8 percent drop to a record low.
This helped weigh down heavyweight energy stocks, although
crude held at above $47 per barrel <CLc1>.
BP <BP.L>, Cairn Energy <CNE.L> and BG Group <BG.L> lost
between 0.7 and 1.9 percent.
Royal Dutch Shell <RDSa.L> fell 2.6 percent after The Times
newspaper reported analysts warned it was to scrap its share
buyback programme and more than double its debt this year as it
struggles to maintain spending commitments.
Mining stocks were also lower as base metal prices eased
from sharp gains in recent sessions and investors booked in
further gains.
BHP Billiton <BLT.L>, Anglo American <AAL.L>, Xstrata
<XTA.L> fell 0.6-3.5 percent. But Antofagasta gained 1.3 percent
despite being downgraded by Credit Suisse.
Rio Tinto <RIO.L> lost 3.5 percent with uncertainty about a
proposed $19.5 billion tie-up with Chinese state owned Chinalco
also driving the performance of the stock. A source close to the
Chinalco transaction said it only needed a simple majority of
shareholder support to go ahead. []
DEFENSIVE WEAKNESS
Cadbury's <CBRY.L> and British American Tobacco <BATS.L>
pulled the index lower as investors booked profits after recent
gains in defensive sectors. Cadbury's fell 3.4 percent while
British American Tobacco was down 2.9 percent.
"There may be an element of profit taking going on in those
kind of stocks and people looking to rotate into more
growth-focused entities if there is a pull-back in the market,"
Whitehead said.
Better-than-expected results from Germany's analyst and
investor sentiment index saw the FTSE briefly recover, but
overall sentiment remained downbeat.
The ZEW rose unexpectedly in March to its highest level in
over 1-1/2 years, boosting hopes Europe's largest economy will
start recovering towards the middle of the year. []
Banks were broadly higher, having recovered from earlier
losses after American Express <AXP.N> said the number of people
struggling to make credit card payments grew, casting doubt on
the sector's ability to return to profit in the downturn.
HSBC <HSBA.L>, Barclays <BARC.L> and Lloyds Banking Group
<LLOY.L> rose between 0.6-3.5 percent.
However, Standard Chartered <STAN.L> and Royal Bank of
Scotland <RBS.L> lost 1.2 percent and 0.9 percent, respectively.
British banks <.FTNMX8350> gained 14 percent last week, as
investors became hopeful that stability was returning to the
troubled sector.
Britain wants banks to follow a code of practice aimed at
making them more open about their tax liabilities, finance
minister Alistair Darling said on Monday. []
Investors were looking ahead to a two-day Federal Reserve
meeting starting later in the day, and were also hopeful that
the G20 meeting in London in early April may introduce measures
to help speed the end of the recession.
(Reporting by Farah Master; editing by Simon Jessop)
