London - Britain's top share index was little changed on Friday, finding technical support after its largest single day drop in nearly two months.
The FTSE 100 was down 1.9 points at 6,481.45 points, stabilising after it stepped into “oversold” territory on its 7-day Relative Strength Index, a short-term momentum indicator.
The UK blue chip index shed 104.09 points on Thursday after a batch of strong British and US data fuelled expectations the Bank of England may raise its interest rates earlier than previously expected and the Federal Reserve may start cutting its asset-purchase programme next month.
Stimulus programmes by global central banks have driven investors out of low-yielding assets and into shares in the past year, helping the FTSE 100 rise nearly 20 percent between September 2012 and June.
“Our clients are trying to get out of some positions right now on expectations the Fed will taper in September,” said Ishaq Siddiqi, strategist at ETX Capital.
“It's really about getting ahead of the Fed. I don't think we have reasons to buy the dips ... until the first round of tapering is initiated in September.”
After Thursday's selloff ETX Capital reviewed its target for the FTSE, which it now expected to hit 6,320 by the next Fed policy meeting on Sept. 17.
Traders said better-than-expected economic data on Friday, when housing data for July and the Michigan sentiment index for August will be published, could strengthen expectations the Fed will dial back its quantitative easing programme and push the FTSE lower on the day.
The FTSE was finding support at Thursday's low of around 6,460 points, a sign a number of buyers were holding on to their long positions on UK blue chips.
Gold miners Randgold and Fresnillo led gainers, tracking a bounce in gold prices, followed by home builder Persimmon, which had been among the worst hit on Thursday as expectations of an interest rate hike in Britain were brought forward.
Persimmon's stock is down 15 percent since mid-July.
Shore Capital said the decline in home builders' shares may be overdone and the expectations of an early rise in interest rates exaggerated.
“We dispute whether the Bank will be keen to raise rates as early as now discounted, as inflation pressures remain low, and with surging immigration, the unemployment rate may stay higher for longer,” the brokerage said in a note.
“If worries over rate increases dissipate then the housebuilders can resume their rise, in our view.” - Reuters