LONDON (AFX) - London shares turned a touch lower in midmorning deals as caution ahead of the mid-term elections in the US tempered well received numbers from retailer Marks & Spencer and renewed strength in oil heavyweights, dealers said.
At 10.01 am, the FTSE 100 was 0.2 points lower at 6224.3, off an earlier high of 6241.8, with the broader indices mixed.
Volume was solid with 663 mln shares changing hands in 66,721 deals.
Trading is likely to remain volatile throughout the session as the US goes to the polls with George Bush battling to keep Republican control of the House of Representatives and the Senate.
Democratic gains traditionally knock market sentiment with defence and pharmaceutical stocks the hardest hit.
But despite this, Marks & Spencer was the standout feature, hitting nine year highs, after the fashion and food group unveiled a solid set of interim numbers, confirming the recovery under CEO Stuart Rose has shifted up a gear.
This morning, Marks & Spencer posted a 32.2 pct rise in adjusted pretax profit to 405.1 mln stg for the 26 weeks to Sept 30, compared to a consensus forecast of 400 mln.
Sentiment was further boosted as the group, which trades from over 450 UK stores, said it is 'well positioned' for the crucial Christmas period.
In response, Citigroup reiterated its 'buy' advice and said with the strong current trading, second half estimate risks remain firmly on the upside.
Oil stocks were also courted, as crude prices held steady above 60 usd a barrell with the market digesting OPEC comments on the possibility of further production cuts next month.
BP took on 6 at 603, BG firmed 4-1/ at 701-1/2 and Royal Dutch Shell rose 12 at 1896.
Elsewhere, positive broker comment spurred gains in Northern Rock, 9 higher to 1,201 after Merrill Lynch hiked its target price to 1,395 pence from 1,250.
The broker said the mortgage bank was its preferred stock in the sector alongside Barclays -- 5-1/2 firmer at 711.
Barclays was further in focus after the UK's largest bank said it is to buy German exchange traded funds (ETF) provider Indexchange Investment from Bayerische Hypo-und Vereinsbank for 240 mln eur cash.
And property stocks were also in demand on the back of a note on the sector by HSBC.
Slough Estates and British Land were up 11-1/2 to 714 and 16 at 1521 respectively after the broker started both stocks with an 'overweight' rating and Land Securities took on 17 at 2104 after it was initiated 'neutral'.
BT Group also found favour, up 2-1/4 to 287-1/4 after Investec Securities upped its stance on the telecoms stock to 'buy' from 'hold' ahead of the third quarter results on Thursday.
And BAE Systems rose 2-3/4 to 413 as Citigroup initiated coverage with a 'buy' stance, noting its positive view on the defence subsector is partly built on a belief that US defence spending will continue to grow and partly that the strength in exports will continue.
But in the same note, the broker Citigroup initiated coverage engineer Rolls-Royce as a 'sell' with a price target of 425p -- sending shares 4-1/4 lower at 462.
Still on the downside, Yell Group shares sank 42 to 583 after the UK directories publisher released weaker-than-expected fiscal first-half results, knocked by the recent 3.3 bln eur takeover of Spanish peer TPI.
The news prompted house broker Merrill Lynch to cut its stance on the stock to 'neutral' from 'buy', saying that the shares have now exceeded its price objective after a strong run and the absence of upgrades and slower momentum in the US may limit upside, at least in the short term.
The owner of the Yellow Pages directory said first half turnover jumped 19.4 pct to 848.8 mln stg following the TPI and the TransWestern takeovers.
But this figure was far short of the 923.2 mln stg consensus forecast, mainly due to a smaller-than-expected contribution from the Spanish business.
AB Foods also took a knock, sliding 23 to 828, as investors took this morning's 'in-line' full-year results as an opportunity to take profits following yesterday's strong performance.
Before the open this morning, the sugar foodstuffs group which also owns the Primark high street retail chain said its adjusted full year pretax profits fell 4 pct from a year earlier to 559 mln stg.
In response, Credit Suisse said underlying profits are very much in line with the broker's and consensus estimates, but highlighted the British Sugar division put a 34 mln stg dent in the group's full-year numbers, although this is a touch less than the broker had expected.
Also under the cosh was Scottish & Newcastle, down 13 to 555-1/2, as the brewer's cautious outlook for 2007 overshadowed in-line third-quarter results.
In response, Citigroup retained its 'hold' stance, saying although the update was 'in-line' the performance in Western Europe remained 'weak' while the outlook was 'cautious'.
And Antofagasta eased 4 at 524-1/2 after the copper giant revealed a Santiago court has overturned some permits awarded to the company by the Chilean water authority in connection with the construction of the El Mauro tailings dam.
The company said its unit, Minera Los Pelambres, would appeal the decision of the court.
In response, Numis cut its price target on the group to 709 pence from 739p but retained its 'buy' advise.
On the second line, Cookson group was the top performer, up 35 pence at 6333, after the material sciences company said it is expecting its full-year performance to be slightly ahead of forecasts following an 'encouraging' performance in the third quarter.
Responding to the update, Bridgewell Securities repeated its 'buy' advice and said the trading statement makes for encouraging reading.
Elsewhere, HMV took on 3-1/4 at 162-1/2 after the Telegraph noted vague bid talk around the music retailer while the Independent highlighted that Fidelity increased its stake in the group to 7.3 pct.
And stakebuilding also lifted Misys, up 4-3/4 at 213, on news ValueAct Capital has increased its stake in the software group to 5.13 pct.
Still in M&A, Wolverhampton & Dudley gained 34 at 150 after the FT reported talk property tycoon Robert Tchenguiz has turned his attention to the pub group.
On the downside, Henderson Group was the main casualty, off 3 to 11/2 amid reports that UBS were placing 48 mln shares in the mid-cap fund manager at a price of 111 pence each.
Meanwhile, a couple of downgrades weighed on Meggitt, 7 lower to 322, with UBS cutting its stance to 'neutral' from 'buy', while Dresdner Kleinwort downgraded its stance to 'hold' from 'buy'.
UBS also lowered its 2007 and 2008 EPS estimates for Meggitt by 2.0 pct and 3.4 pct respectively on the back of the A380 delays.
Meanwhile, Northgate lost 21-1/2 at 1077 as a trading update from the commercial vehicle hire company failed to inspire.
This morning, the group said first half trading has been satisfactory but added the market remains competitive although it has not experienced the same pressure on hire rates that it saw last year.
And easyJet dived 4-1/4 at 541-1/4 as lower capacity, traffic and load factor numbers offset 'in-line' full year revenues from the no-frills airline.
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