* Heavyweight energy stocks, HSBC slip
* Defensive pharmas, tobacco firms higher
By John Coppock
LONDON, Dec 18 (Reuters) - Conflicting signals on the health
of the UK economy left Britain's leading share index flat at
midday on Thursday.
At 1159 GMT, the FTSE 100 <> index of leading shares
was up 1.98 points at 4,326.17, as losses by oil firms, miners
and leading bank HSBC were offset by gains in defensive
drugmakers and tobacco stocks.
HSBC <HSBA.L>, Europe's largest bank, fell another 5.4
percent, dropping for the 6th straight session, on concerns it
will need a capital raising which it has thus far avoided,
accompanied by a dividend cut to save money. HSBC's sheer size
knocked 19.3 points off the FTSE 100 index on its own.
Other banks were buoyed when Bank of England Deputy Governor
Charles Bean said zero interest rates in Britain are a
possibility, reversing earlier losses. Zero rates would
kick-start the economy and make it less risky for banks to lend
money.
UK retail sales for November were higher than expected,
rising by 0.6 percent when a fall of 0.6 percent had been
forecast, suggesting that shoppers are not reigning in spending.
However, net government borrowing rose to 15.997 billion in the
same period, the highest monthly figure since records began,
showing a clear deterioration in public finances.
"In volume terms, Christmas has started a week early," said
strategist Dave Buik at BGC Capital Partners. "We have a market
in (a) state of disrepair because of the recession, balanced by
fund managers having significant money and not knowing what to
do with it, leading to neutral sessions.
"The retail sales figures are meaningless because it's all
about profit and not increased percentages, he said, adding that
the figures will not necessarily feed through into boosting
retailers, with Marks and Spencer down another 2.5 percent on
renewed fears of price-cutting.
British Airways <BAY.L> fell 3.6 percent after it failed to
agree terms for a $6.4 billion merger with Australia's Qantas.
"We never believed it was a serious proposition in the first
place, but there is clearly a serious valuation issue and it
probably relates to the pension deficit," said analyst Nick van
den Brul at Exane BNp Paribas.
Oil companies were the top-weighted collective fallers by
sector, despite a small tick-up in the oil price by 50 cents to
$40.68 a barrel, on fears that plans by OPEC and possibly Russia
to cut production will be ineffective in raising oil prices. BP
<BP.L> dropped 1.3 percent while Royal Dutch Shell <RDSa.L> fell
0.5 percent.
However, oil services firms Petrofac <PFC.L> and John Wood
Group <WG.L> both saw strong gains on positive reports.
Petrofac was up 6.5 percent after it said net profit for
2008 would be in line with expectations and the 2009 bidding
pipeline continued to be promising, while Wood Group surged 9.2
percent after Morgan Stanley upgraded the firm to "overweight"
from "equal weight".
MINERS MISERY
Miners had a rough day, eating into gains made earlier this
week, with Anglo American <AAL.L> down 2.4 percent and BHP
Billiton <BLT.L> dropping 2.7 percent on fears that production
cuts will be necessary to prop up profits as commodity prices
slump in the economic downturn.
Antofagasta <ANTO.L> fell 2.2 percent after Societe Generale
downgraded the miner to "sell" from "hold" on worries that hopes
for a recovery in the copper market are overplayed.
Buoying the market were defensive stocks led by
pharmaceuticals and tobacco, with popular tracker stocks such as
Vodafone <VOD.L> also in demand by fund managers.
The pharma sector added 6.9 index points to the FTSE 100 and
tobacco 4.5 points, while Vodafone shares rose 2.8 percent,
adding 7.8 index points, continuing its traditional
pre-Christmas rally as a tracker fund staple.
(Editing by Simon Jessop)
