FTSE posts third straight day of losses, oil drags

By Kit Rees and Alistair Smout

LONDON (Reuters) - Britain's top share index fell for a third straight day, extending its decline after a steep drop in the previous session as oil stocks came under pressure and Associated British Foods was hit by broker downgrades.

The FTSE 100 was down 0.5 percent at 6,665.63 at its close on Tuesday, adding to its losses from Monday when it fell more than 1 percent.

Despite a steady open after U.S. Fed official Lael Brainard's dovish speech quelled concern that the Fed might raise interest rates as early as next week, investors were left feeling uncertain as to what expect from the Federal Reserve.

"The sudden burst of volatility in the previous two days saw investors pause on Tuesday to decide whether it's a buying opportunity or a sign of more pain to come," said Jasper Lawler, analyst at CMC Markets, in a note.

Oil and gas stocks took 13 points off the index, tracking a fall in oil prices which dropped after the International Energy Agency (IEA) said that it saw an oil glut persisting. BP and Royal Dutch Shell were down 1.9 percent and 1.4 percent respectively. [O/R]

Mining companies were also under pressure, tracking weakness in the price of copper.

Associated British Foods was among the biggest fallers, down 2.6 percent, taking declines this week to nearly 13 percent.

The stock fell steeply on Monday after results, hit by lacklustre trading at its Primark clothing chain. On Tuesday, it suffered a spate of broker downgrades.

"With a third successive year of Primark margin falls now expected for 16/17, we ... see double-digit downside to the stock," said analysts at Jefferies in a note. The broker downgraded AB Foods to "underperform", and is one of the most accurate analysts on the stock.

British Land dropped 2.7 percent after Deutsche Bank cut its target price on the stock.

There were more dramatic moves in the mid-cap FTSE 250. Ocado slumped 13.7 percent after the online grocer warned of sustained margin pressure due to an intensely competitive market.

Russ Mould, investment director at AJ Bell, said that while its volume performance was its best in over five years, "the group is not immune to the supermarket price war and is seeing sustained and continuing pressure on its margins."

Sports retailer JD Sports gained 5 percent, having risen as much as 10 percent earlier in the session to a record high, after a jump in first half revenue and profit.

(Reporting by Kit Rees; Editing by Keith Weir)