FTSE underperforms European shares, hit by oil and energy firms

By Alistair Smout and Atul Prakash

LONDON (Reuters) – The FTSE 100 edged higher on Monday, underperforming continental European shares as heavily weighted oil and energy firms fell.

However, falling oil prices boosted travel and leisure stocks, with cruise operator Carnival (CCL.L) rising towards the top of the index.

Brent oil fell below $ 49 a barrel after a cut in short-term forecasts by Goldman Sachs. Oil prices are at their lowest since April 2009 and have fallen for seven weeks.

The UK oil and gas index , which features major companies such as Royal Dutch Shell (RDSa.L) and BP (BP.L), was down 0.8 percent.

Mid-cap oil and gas producer Afren (AFRE.L) slipped 20.6 percent after saying it was considering options for its operations in Barda Rash in Iraqi Kurdistan, citing poor drilling results.

Domestic energy suppliers also came under pressure, with SSE (SSE.L) down 2.5 percent, the biggest loss in the FTSE 100 index.

Britain’s opposition Labour Party said it would try to introduce a law enabling the energy regulator to force companies to cut prices when wholesale costs declined ahead of May’s election, putting utilities under more pressure to pass on the falling price of energy to consumers.

British utility Centrica (CNA.L) fell 1.4 percent.

Falling energy prices did support some stocks however, with holiday cruise company Carnival (CCL.L) up 2.8 percent. Travel and leisure stocks , many of which have oil as a major input cost, rose 1.3 percent.

“Earnings growth expectations have suffered because of the energy sector downgrades. But expectations are out of kilter, as the benefits to other sectors of lower oil have not been reflected in upgrades,” James Butterfill, global equity strategist at Coutts, said. “There’s a greater chance of positive surprises in these sectors.”

Britain’s FTSE 100 (.FTSE) index rose 30.22 points, or 0.5 percent, to 6,531.36 by 11:20 a.m., lagging gains of around 1.6 percent for Germany’s DAX (.GDAXI) and France’s CAC (.FCHI), which have less exposure to oil producers.

Raised expectations of European Central Bank action to help fight deflationary pressure in the euro zone also stand to boost continental European equities ahead of the FTSE 100.

GKN rose 3.2 percent, leading the gains in the FTSE 100 (.FTSE), after Credit Suisse raised its price target for the stock to 410 pence from 380 pence and reiterated its “outperform” rating.

(Editing by Janet Lawrence)