October 10, 2018 / 9:33 AM / a month ago

FTSE struggles near 6-month low as Brexit hopes lift pound

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* FTSE 100 index down 0.1 pct

* Domestically exposed stocks outperform

* Oil majors rise led by BP

* Homebuilder Telford drops on uncertain outlook

By Danilo Masoni

MILAN, Oct 10 (Reuters) - Britain’s top share index hovered near a six-month low on Wednesday as Brexit deal hopes lifted the pound, hurting shares of big international companies.

The FTSE 100 slipped 0.1 percent by 0900 GMT as sterling hit a new 3-1/2 month high on reports that Britain and the European Union had made progress in negotiations over an Irish border backstop, a key hurdle in reaching a Brexit deal.

“After a summer of heightened tensions, which saw the markets pricing in the increasing likelihood of a no-deal Brexit, it appears that both the EU and UK are now prepared to commit to some form of deal,” said Ricardo Evangelista, analyst at ActivTrades in London.

Data showing that the British economy’s summer surge turned out to be stronger than expected, as warm weather spurred consumer spending and housebuilding, boosted domestically exposed stocks but had little impact on the broader stock market.

Several analysts expect that Britain and the EU could reach a negotiated Brexit deal, a scenario that could further lift the pound and weigh on the relative performance of the FTSE against global equities.

Further strength in the pound would penalise exporters but could be a tailwind for domestically exposed stocks. The UK is set to legally leave the EU at the end of March.

The FTSE 100, which is down 6 percent this year against a 4.4 percent drop in the broader European market, derives 70 percent of its profits from overseas. The biggest drags on the FTSE 100 were big multinationals British American Tobacco and Diageo and Reckitt Benckiser, all down more than 1 percent.

Also weighing were materials stocks, while Burberry fell more than 4 percent, as investors sold shares in the richly valued luxury sector following a Morgan Stanley downgrade and amid worries over the key Chinese market.

Shares of oil producers, however, continued to gain, despite a slight pullback in crude prices from recent multi-year highs.

BP rose 0.8 percent after its chief executive said the company was planning on a cycle of oil prices at $60-65 per barrel. Shell also rose 0.8 percent.

Domestically exposed phone group BT Group was the biggest gainer on the FTSE 100, up 3 percent as the broader sector in Europe also was in demand.

Banks were also higher, supported by recent gains in global bond yields. Domestically exposed banks RBS and Lloyds rose 2.1 and 1.5 percent respectively.

Despite the broader hopes around Brexit, London-focused homebuilder Telford Homes tumbled 8.6 percent after flagging rising uncertainties ahead of the country’s exit from the EU. (Reporting by Danilo Masoni; Editing by Susan Fenton)

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