FTSE falls, with oil and gas stocks a drag

By Alistair Smout

LONDON (Reuters) - Britain's top equity index stalled on Monday after disappointing domestic economic data pointed to a weak manufacturing outlook, with oil and gas stocks among the biggest fallers.

Energy stocks shaved more than 10 points off the blue-chip FTSE 100 index (.FTSE), with crude oil prices weak on expectations that OPEC production would remain high, pointing to the potential for oversupply despite declining U.S. rig operations. [O/R]

"OPEC is unlikely to cut production in our view. Lack of cohesion among members and the emergence of U.S. shale production weakened its monopoly position," Lombard Odier said in a note.

"We think prices cannot move sustainably higher given the state of underlying fundamentals."

The engineering firm Weir Group (WEIR.L), which does much of its business in the oil sector, fell 3.4 percent, the index's biggest faller.

Data after the market closed on Friday showed oil firms had cut 13 rigs from oil fields, the biggest drop in four weeks.

An improvement in U.S. rig data has supported Weir in recent weeks.

At the close, the FTSE 100 index was down 30.85 points, or 0.4 percent, at 6,953.58, having turned negative after the closely watched PMI manufacturing survey missed expectations, even as activity in Britain edged up from a seven-year low.

While there was strong domestic demand, the survey found that it was largely offset by weak exports.

Among gainers, Ashtead (AHT.L) rose 2.8 percent, the top FTSE 100 riser, after positive broker comment from Jefferies, recovering from a drop last week.

Lloyds (LLOY.L) rose 1 percent after Britain said it would launch a sale of shares in the bank to private retail investors in the next 12 months and extended a facility enabling it to sell more shares to financial institutions.

Some traders maintained a cautious stance towards the FTSE given uncertainty over Greece's debt problems, though most investors expect Greece to remain within the euro zone.

Athens and its euro zone and International Monetary Fund (IMF) creditors have been locked in talks for months on a cash-for-reforms agreement. Officials denied rumours that a deal would be announced on Monday afternoon.

"I think it'd be a case of markets being risk-off until we reach a resolution on Greece," Mike McCudden, head of derivatives at Interactive Investor, said. He said that traders were also cautious ahead of closely watched U.S. jobs data at the end of the week.

"With all the data this week as well, there's a lot to be nervous about."

(Additional reporting by Tricia Wright and Sudip Kar-Gupta; Editing by Kevin Liffey and Jane Merriman)