* Banks recover but tobacco, pharmas gain most
* Investors await UK budget at 1200 GMT
* Ex-divs knock 11.78 points off index
By Tricia Wright
LONDON, March 20 (Reuters) - Britain’s top shares traded flat on Wednesday, steadying after recent weakness as banking stocks firmed, while investors positioned themselves for the UK’s annual budget.
The FTSE 100 was up 0.90 points at 6,442.22 by 1120 GMT, following three straight sessions of declines - a run of falls not seen since mid-December. Volumes were thin, however, at around a third of the 90-day daily average.
Providing support was optimism that a fresh bailout deal for Cyprus will be struck after lawmakers rejected a deposit tax.
Banking stocks saw gains after heavy falls on Tuesday, but tobacco and pharmaceuticals added the most points to the index as investors remain wary of taking on too much risk while the Cypriot situation is still developing.
Companies providing staple goods and services to consumers are generally regarded as a safer bet when the economic climate is austere or uncertain.
Investors were awaiting finance minister George Osborne’s annual budget presentation at 1200 GMT, and the release of the U.S. Federal Reserve’s monthly monetary policy statement after the London market close.
“(Investors would) rather wait and hold back from exposure until the U.S. central bank and the UK budget goes through and then we might start to see a bit more of a return in volumes,” Ishaq Siddiqi, a market strategist at ETX Capital, said.
Osborne is set to stick with austerity in his 2013-14 budget despite growing calls for a change of course to help the British economy, out of its rut.
But he may announce measures to boost infrastructure investment, which could aid construction stocks, and is widely expected to tweak the Bank of England’s mandate.
Any suggestion the central bank might be given leeway to weaken sterling further could boost the FTSE’s exporters and other dollar revenue earners.
The Federal Reserve, meanwhile, looks set to sustain its $85 billion monthly bond-buying stimulus despite improving U.S. economic data.
“The ongoing promise of QE across the Atlantic is going to favour stocks generally, and because of this it’s likely that equity traders will be paying as much attention to the FOMC verdict tonight and subsequent press conference as they will to this afternoon’s budget,” said Mike McCudden, head of derivatives at Interactive Investor.
Ex-dividend factors capped gains, knocking 11.78 points off the index, with Anglo American, Aviva, HSBC and InterContinental Hotels all trading without their payout attractions.
Cyprus’s parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout after market close on Tuesday, but investors remained hopeful that a deal could be struck without a tax on deposits.
The European Central Bank said after the vote it remained committed to providing liquidity within certain limits, while the Cypriot finance minister said he was hopeful of a deal with Russia.
Royal Bank of Scotland, which has significant exposure to the euro zone, was among the top risers, up 1.9 percent, also benefiting from an upgrade from Liberum to “buy” from “hold”. (Additional reporting by Alistair Smout; Editing by Catherine Evans)