* Commodities drop on China reserves requirement rise
* Banks also dampened by U.S. tax levy talk
* Food retailers higher; Tesco delivers solid update
By Jon Hopkins
LONDON, Jan 12 (Reuters) - Britain's top share index shed
1.1 percent by midday on Tuesday as commodity issues and banks
dropped sharply on news China has raised its banks' reserve
requirements, a sign of tighter monetary policy.
Miners led the blue chip retreat as metal prices fell
further following the move by China, with the sector already
under pressure after disappointing fourth-quarter results
overnight from U.S. aluminium firm Alcoa <AA.N>.
[].
Vedanta Resources <VED.L> lost 3.9 percent, also hit by a
Deutsche Bank downgrade to "hold" from "buy", while Fresnillo
<FRES.L>, Eurasian Natural Resources <ENRC.L>, Kazakhmys
<KAZ.L>, and Rio Tinto <RIO.L> shed 3.2-6.2 percent.
By 1157 GMT, the FTSE 100 index <> was 59.05 points
lower at 5,479.02, dropping back after hitting a 16-month
intraday peak at 5,600.48 on Monday.
"It looks like the 5,600 level touched on Monday was a bit
too far for the blue-chip index and a reality check for the
markets has pulled the FTSE back through 5,500 now", said Angus
Campbell, head of sales at Capital Spreads.
Energy issues also suffered from the China move which
countered the benefits of the strong trade numbers reported by
the country on Monday, muddying the demand outlook for crude,
which fell below $82 per barrel <CLc1>.
Royal Dutch Shell <RDSa.L>, BP <BP.L>, BG Group <BG.L>,
Cairn Energy <CNE.L>, and Tullow Oil <TLW.L> fell 0.8 to 2.7
percent.
Banks were knocked further as well, having been hit earlier
by reports that U.S. President Obama is considering levying a
tax on the sector, according to the New York Times.
Standard Chartered <STAN.L>, Lloyds Banking Group <LLOY.L>,
Royal Bank of Scotland <RBS.L>, HSBC <HSBA.L>, and Barclays
<BARC.L> lost 1.1 to 3.1 percent.
FOOD WANTED
Supermarket issues provided the main underlying support for
the FTSE 100 index after Tesco <TSCO.L>, the world's
fourth-biggest retailer, smashed Christmas sales growth
forecasts in its main British market, boosted by its loyalty
scheme and demand for premium foods. []
Tesco was up 1.0 percent, while peer WM. Morrison <MRW.L>
added 0.2 percent, helped again by a Nomura upgrade on Monday.
British retail sales values rose 4.2 percent on a
like-for-like basis in December, and 6 percent when new store
space was included, in what the British Retail Consortium said
on Tuesday was a better-than-expected Christmas. []
Aside from food retailers, other selected defensive issues
were also in demand as investors' risk appetite faded, led by
telecoms, and healthcare firms.
BT Group <BT.L> gained 1.0 percent, medical products firm
Smith & Nephew <SN.L> firmed 0.5 percent, and Imperial Tobacco
<IMT.L> added 0.6 percent.
Life insurers were also stronger, bouncing back after sharp
falls on Monday supported by underlying sector consolidation
hopes, with Standard Life <SL.L>, RSA Insurance <RSA.L>, Aviva
<AV.L>, and Prudential <PRU.L> up 0.1 to 0.9 percent.
Among individual blue chip gainers, Financial Times
publisher Pearson <PSON.L> took on 0.7 percent following an
upgrade in rating by Morgan Stanley to "overweight".
Overall domestic economic news was mixed on Tuesday.
Britain's goods trade deficit with the rest of the world
narrowed more than expected in November, after the country's
deficit with non-EU countries fell to its lowest since late
2005, official data showed on Tuesday. []
Meanwhile British house prices rose by a seasonally adjusted
1.7 percent on the month in November, leaving them up 0.6
percent on the year, data from the Department for Communities
and Local Government showed on Tuesday. []
But overnight the Royal Institution of Chartered Surveyors
said its monthly house price balance fell in December for the
first time since prices hit a low point in February.
[]
(Editing by Rupert Winchester)
