Oct 22 (Reuters) - J.P. Morgan Securities downgraded Pepco Holdings Inc (POM.N: Quote, Profile, Research) and Vectren Corp (VVC.N: Quote, Profile, Research) to "underweight" from "neutral."

Analyst Andrew Smith recommended pairing a short Pepco position with a long side on NRG Energy Inc (NRG.N: Quote, Profile, Research), Dynegy Inc (DYN.N: Quote, Profile, Research) or Edison International (EIX.N: Quote, Profile, Research), saying the companies may benefit from a rise in natural gas prices.

The analyst also recommended shorting Vectren against long positions on NV Energy Inc (NVE.N: Quote, Profile, Research) or Wisconsin Energy Corp (WEC.N: Quote, Profile, Research) as it expects both the stocks to offer attractive, stable and regulated earnings growth.

Smith said the downgrade of electric-services company Pepco was based on expectations of a difficult outlook for its unregulated power plant arm, Conectiv Energy.

The analyst lowered his rating on energy-holding company Vectren, citing difficult market conditions for its coal mining and gas marketing and storage segments in 2010.

Shares of Pepco and Vectren were down 2 percent in morning trade Thursday on the New York Stock Exchange. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Vinu Pilakkott)