Earnings concerns hit UK shares, uptrend intact

* FTSE 100 index finishes 0.5 percent lower

* Growth, earnings' concerns hit banks, miners

* Charts signal FTSE's uptrend intact

By Atul Prakash

LONDON, Oct 8 (Reuters) - British blue chip shares dipped on Monday with growth-linked banks and miners hit by concerns about earnings and the global outlook, although analysts said the market's uptrend would resume soon.

UK banks

fell 1.2 percent, while mining stocks

were down 0.4 percent after the World Bank cut its growth forecasts for China and as investors prepared for third-quarter earnings, which kick off on Tuesday in the United States with results from aluminium company Alcoa


According to Thomson Reuters data, earnings for the U.S. S&P 500

companies are forecast to have fallen 2.4 percent from a year earlier, the first drop in three years. The earnings season in Europe will pick up in the second half of October.

Cookson Group

, which makes products for the global steel industry, and recruiter Michael Page

on Monday became the latest UK firms to issue profit warnings. Cookson shares plunged 12.4 percent while Michael Page shed 0.6 percent.

Traders and analysts said the index had potential to bounce back again soon as the overall trend remained positive. Expected developments such as Spain seeking a bailout and some clarity on the U.S. "fiscal cliff" of spending cuts and tax rises could quickly lift investors' appetite for risk, they said.

"The market will trend upwards, but very slowly. A lot of money is sitting on the sidelines, but you are not going to break out of the recent range until people see a solution to the European problem and are confident with that solution," Bob Butler, head of trading at Westhouse Securities, said.

"At the moment, you would probably go for dividend plays. Investors are not keen to take too much risk, but are looking for the safety of their money. I would tend to be more defensive."

The market saw choppy trade, with the FTSE 100

paring losses late in the session to end 29.28 points, or 0.5 percent, lower at 5,841.74, after falling to a low of 5,818.76.

The index, which has traded in a broad range of 5,630-5,930 in the past two months, is up nearly 5 percent this year and has gained 11 percent since a low in June. But it has struggled to make strong gains in recent sessions, mainly due to growth worries.

Fund managers said a good trading strategy in the current environment was to look for individual companies with potential to provide good returns, rather than taking a sectoral investment approach.

"You should look for the companies whose earnings are not cyclical and those which have a lot of bad news priced in," said Felicity Smith, fund manager at Bedlam Asset Management, which manages about $700 million.

"We like companies such as Sanofi

and Novartis

, which have done very well this year. They have plenty of free cash flow, a very strong pipeline."

Swiss drugmaker Novartis rose 0.2 percent, while its French peer Sanofi fell 1.4 percent. Shares in the companies, however, are up 20 percent and 7 percent respectively this year.


Charts showed that the FTSE 100 index's medium-term outlook remained positive.

"I still like the index. The trend is up and the market is not overbought either. Any moves to the downside are corrections within that trend," independent technical analyst Cliff Green said.

"Nearby support is going to be around the 5,740-5,750 area. If that gives way, it could trigger something deeper. But for the moment, I expect that support to hold."

The support area represented a point on the uptrend line that started in June and has been challenged several times on each major correction, he said, adding the index would target the 6,100 level in the medium term.

Analysts said UK shares had become expensive following recent price moves, but were still relatively attractive.

According to Thomson Reuters Datastream, the FTSE 100 index traded at 10.7 times its one-year forward earnings, up from 6.6 times in October 2008 but below its 10-year average of 11.5.

"Stocks are not dirt cheap, but valuations are still okay and wouldn't be an issue when it comes to investing," Mike Lenhoff, chief strategist at Brewin Dolphin, said.

The market was vulnerable to profit taking and could give up another 100-150 points before recovering, he added.

(Editing by John Stonestreet and Susan Fenton)

((atul.prakash@reuters.com)(+44 20 7542 6189)(Reuters Messaging:)(atul.prakash.thomsonreuters.com@reuters.net))


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