By Michael Taylor

LONDON (Reuters) - The FTSE-100 of blue-chip index of blue-chip stocks is in danger of a market capitulation spreading from weakness in housebuilding and media sectors, and defensive stocks offer best protection, Morley Fund Management said on Tuesday.

Daniel Roberts, a fund manager at Morley's Norwich UK Equity Income Fund, which has 600 million pounds under management, said evidence of a market capitulation in the UK's bear market is already present in both the housebuilding and media sectors.

Investors should now be more selective, cautious but not panicky, and look to invest in defensive sectors like telecoms and drugmakers where structural issues are well understood and have healthier balance sheets, he said.

Among his top picks within the defensive sectors are BT Group (BT.L: Quote, Profile, Research), Vodafone (VOD.L: Quote, Profile, Research), GlaxoSmithKline (GSK.L: Quote, Profile, Research) and AstraZeneca (AZN.L: Quote, Profile, Research) because they are oversold, have high yields and less exposure to the economic and consumer downturn.

"In a slowing macro environment they are a good place to be because they are less exposed to the economic cycle than other parts of the market," Roberts said. "These parts of market earnings are less at risk than elsewhere."

He added that although mobile phones were not widely available during the last major economic downturn in the early 1990s, telecoms will still prove to be more defensive in their earning streams.

On the FTSE 100 .FTSE outlook, Roberts, who has around 14 years of experience in the investment industry, said: "You can definitely say that people seem to be universally bearish."

"There is evidence of that (capitulation). In certain parts of the market there are signs of that, but I wouldn't say it's across the market place."