Britain's FTSE retreats ahead of Fed policy meeting
* FTSE 100 down 0.3 percent
* Investors wary ahead of U.S. Fed meeting
* Lloyds falls after UK sells part of stake
LONDON, Sept 17 (Reuters) - Britain's top shares gave back some of the previous day's gains on Tuesday morning, ahead of a Federal Reserve policy meeting at which the U.S. central bank is expected to signal plans to start reducing support for the world's biggest economy.
The FTSE 100 was down 20.53 points, or 0.3 percent, at 6,602.33 by 0734 GMT. It rose 0.6 percent on Monday and hit its highest close since August 2 after Lawrence Summers withdrew his candidacy for Fed chief, boosting prospects of a measured scale-back in its stimulus programme as the economy improves.
Shares in Lloyds Banking Group were among the worst performers in London after the UK said it would sell part of its stake in the lender, which it had to bail out with taxpayers' money during the financial crisis. Lloyds fell 2.2 percent to 75.65 pence, aligning with the government's placing price of 75 pence per share for the sale of a 6 percent stake in the bank.
"It's had a great run, but it's expensive and I'm not convinced that it's the best buy right now," said Nick Xanders, strategist at BTIG.
Lloyds shares are up some 58 percent in 2013 and now trade on a 12-month forward price/earnings ratio of 12.5 times, against the FTSE 100 index on around 11.9 times, according to Thomson Reuters Datastream.
More generally, investors were reluctant to take positions ahead of the U.S. Federal Reserve's policy meeting to be held on Tuesday and Wednesday. According to a recent Reuters poll of economists, the Fed is seen announcing that it will curb its monthly spending on asset purchases by $10 billion.
The U.S. central bank's massive stimulus programme has been a stock market driver - the FTSE 100 is up some 12 percent this year because investors felt optimistic the U.S. economy was underpinned. In spite of the anticipated cuts in the Fed's asset purchases, many remain bullish on the prospects for equities.
"The anticipated position trimming ahead of the Fed meeting is taking place this morning but with equity markets seemingly in rude health, any weakness could be seen as a buying opportunity for the shrewd investor," Mike McCudden, head of derivatives at Interactive Investor, said.
Citi has raised its 2014 target for the FTSE 100 index to 8,000, while keeping its end-2013 target at 7,000.
"We stay bullish on UK and European equities over the coming 12-18 months: 1)better macro, 2) better earnings, 3) rising risk appetite," the investment bank said in a note.
(Reporting by Tricia Wright, additional reporting by Blaise Robinson and Sudip Kar-Gupta; Editing by Sophie Walker)