* Banks reverse earlier gains to trade down; Lloyds slumps
* RBS rebounds after Monday's slides
* Drugmakers and tobaccos in demand
By Dominic Lau
LONDON, Jan 20 (Reuters) - Britain's leading share index
ticked up by midday on Tuesday, led by drugmakers, tobacco firms
and oil producers, but banks gave up earlier gains to trade down
as investors remained bearish on the beleaguered sector.
By 1156 GMT, the FTSE 100 <> was up 6.86 points, or 0.2
percent, at 4,115.33, after losing 0.9 percent on Monday. The UK
benchmark is down 7 percent this month after plunging more than
31 percent last year -- its worst annual drop since its launch
in 1984.
"The whole banking sector is collapsing," said Jawaid Afsar,
a trader at Securequity. "There is just no one out there who
wants to buy the banks. Quite frankly there is too much concern
about writedowns and possibility of nationalisation."
Lloyds Banking Group <LLOY.L> lost one-third of its value to
touch its lowest in more than 20 years on continuing woes in the
banking sector. A spokesman from Lloyds said the bank continued
to trade satisfactorily since its last update.
"The merger of HBOS and Lloyds TSB into Lloyds Banking Group
creates the weakest of the UK banks in terms of capital, funding
and problem loan book areas," Merrill Lynch said in a note. "We
see a capital deficit based on our stress test work."
Barclays <BARC.L> slid 9.7 percent, HSBC <HSBA.L> shed 3.2
percent and Standard Chartered <STAN.L> lost 3.5 percent.
Royal Bank of Scotland <RBS.L>, however, rebounded 7.8
percent after losing two-thirds of its value on Monday.
The pound fell over 3 percent to a 7-1/2 year low against
the dollar below $1.40 as banking sector woes battered the
currency.
"The (UK) measures ... will not restore confidence in the
sector and given the extent of economic headwinds we retain our
cautious view on the UK banks," Deutsche Bank said in a note.
"With ongoing credit quality and capital risks for Lloyds
and RBS in particular we believe these stocks will continue to
trade materially below tangible book value and we maintain our
sell on Lloyds."
Britain threw its troubled banks another multi-billion pound
lifeline by allowing them to insure against steep losses and
guaranteed their debt to stop the credit crunch pushing the
economy deeper into recession.
Across the Atlantic, Barack Obama takes over as U.S.
president with hopes riding high that he can conjure up a rescue
that will jolt the world's biggest economy back into life and
contain the financial crisis ravaging financial markets.
Drugmakers, deemed defensive by investors, were in demand,
with GlaxoSmithKline <GSK.L> up 1.6 percent, AstraZeneca <AZN.L>
rising 2 percent and Shire <SHP.L> gaining 2 percent.
Cigarette makers rose as investors sought a relatively less
risky area to park their money. British American Tobacco
<BATS.L> and Imperial Tobacco <IMT.L> put on 3.3 and 3 percent
respectively.
Oil producers were also in positive territory, with BG Group
<BG.L> up 1 percent and Royal Dutch Shell <RDSa.L> advancing 1.6
percent.
(Editing by Jon Loades-Carter)
