FTSE rally stalls on Europe concerns, oil prices

* FTSE down 0.3 percent

* Banks down on Europe debt concerns

* TUI, Home Retail and ARM higher on M&A talk

By David Brett

LONDON, April 5 (Reuters) – London’s blue-chip stock index
was lower early on Tuesday, pressured by European debt worries
and high oil prices, while M&A spurred stocks such as Tui Travel
(TT.L: Quote, Profile, Research) and ARM (ARM.L: Quote, Profile, Research).

By 0805 GMT, the FTSE 100 (.FTSE: Quote, Profile, Research) was down 15.40 points, or
0.3 percent, at 6,001.58, having gained in eight of the past
nine trading days to end at a six-week closing high on Monday.

The 8 percent rally on Britain’s top share index stretches
back to March 15, as investor confidence returned following the
shock of Japan’s earthquake and unrest in the Arab world, with
focus switching to the improving economic outlook in the United
States.

Banks (.FTNMX8350: Quote, Profile, Research) were the biggest drag on the index after
Moody’s cut Portugal’s sovereign debt by one notch.
[ID:nL3E7F50X6]

Barclays (BARC.L: Quote, Profile, Research) and Lloyds Banking Group (LLOY.L: Quote, Profile, Research) fell 2.1
percent and 1.3 percent, respectively.

“The ratings agencies have been warning that further cuts
were likely, so it seems as though this has given investors a
reason to bank some profits from recent gains,” said Jimmy
Yates, head of equities at CMC Markets.

Rising oil prices were also a factor in keeping stocks
subdued, as profit margins come under pressure. Miners
(.FTNMX1770: Quote, Profile, Research), which had led gains on Monday, were among those
feeling the pinch.

Brent (LCOc1: Quote, Profile, Research) crude rose to $121 a barrel, or near
two-and-a-half-year highs, as unrest in the Middle East and
North Africa and delays to elections in Nigeria supported
prices.

M&A GAINS

M&A is seen as a big factor to help drive demand for
equities over other asset classes.

“Longer-term gains remain to be had, with companies using
strong cash balances to improve returns for share holders,”
CMC’s Yates said.

TUI Travel rose 4.7 percent on news its German parent TUI AG
(TUIGn.DE: Quote, Profile, Research) had found an alternate route to exit its container
shipping business Hapag-Lloyd [HPLG.UL] after putting on ice
plans for a flotation. [ID:nLDE734073]

Home Retail (HOME.L: Quote, Profile, Research) climbed 5 percent as talk of a takeover
bid for Britain’s biggest household goods retailer was stoked by
news that U.S. private equity firm Madison Dearborn Capital
Partners (MDCP) had built up a 4.25 percent stake.

M&A prospects in the sector boosted chip designer ARM
Holdings 1.6 percent as U.S. firm Texas Instruments Inc (TXN.N: Quote, Profile, Research)
announced the acquisition of National Semiconductor Corp
(NSM.N: Quote, Profile, Research).
Elsewhere, insurance consolidator Resolution (RSL.L: Quote, Profile, Research) rose
2.4 percent as Citigroup raised its target price.

Rexam (REX.L: Quote, Profile, Research) gained 1.8 percent after Keybanc initiated the
canmaker with a “buy” rating, pointing to “a leaner structure”
and more settled business portfolio.

On the downside, Vodafone (VOD.L: Quote, Profile, Research) slipped 1.3 percent as
Nomura cut its estimates on the mobile communication firm,
citing impending changes to Indian telecom policy and a tough
Spanish outlook.

National Grid (NG.L: Quote, Profile, Research) shed 1.9 percent after HSBC cut its
recommendation to “underweight” from “neutral”.

Technical analysts said wile short-term gains could be
limited, longer term the outlook for equities remained bright.

“If we spend the day above 5,970 you’ve got to still look
for it higher … the absence of reversal signals means our bias
would be to stick with the trend,” said Phil Roberts, chief
technical strategist at Barclays Capital, citing 6,050, the high
just prior to the earthquake in Japan, as the next significant
level of resistance.
(Editing by Will Waterman)

FTSE rally stalls on Europe concerns, oil prices