FTSE on the defensive as stronger pound drags

By Helen Reid

LONDON (Reuters) - Britain's main share index fell behind European rivals on Monday in response to a rise in sterling which hit companies that earn money in dollars such as the mining and energy sectors.

The FTSE 100 (.FTSE) fell 0.2 percent to 7,507.89 points, with the biggest dollar-earning stocks, miners and oil majors, the worst-performing as sterling gained against the U.S. currency.

Weakness in sterling had helped the index to produce its strongest week in 10 months last week but the pound's bounce from lows after the weekend put pressure on the index, which has a big international exposure.

Analysts said although the inverse relationship between sterling and the FTSE had somewhat loosened in the last few weeks, the pound's sharp sell-off last week had brought it back into focus as it pushed the index higher.

"The FTSE has had a pretty good rally, it's verging on overbought now so it might just be a little bit of short-term weariness," Ian Williams, economics and strategy analyst at Peel Hunt, said.

"You can still see reasons to be cautious, but the path of least resistance still seems to be up almost everywhere," he added, pointing to the run of record highs for the S&P 500 index last week.

Miners Rio Tinto (RIO.L), Anglo American (AAL.L) and Glencore (GLEN.L), among the most exposed to the U.S. dollar, fell back by between 1.3 to 3.4 percent.

Oil majors BP (BP.L) and Royal Dutch Shell (RDSa.L) also fell.

Shares in Britain's biggest retailer Tesco (TSCO.L) fell 1.1 percent after Magellan Asset Management disclosed a short position in the stock.

Also among the top fallers was easyJet (EZJ.L), down 2.1 percent after HSBC cut its target price on the stock.

Investec analysts highlighted easyJet's slower than expected capacity growth and higher costs, as the market digested the airline's trading update last week.

Gold miners Fresnillo (FRES.L) and Randgold Resources (RRS.L) rose as gold prices climbed to their strongest level in more than a week, with renewed concerns over North Korea's nuclear ambitions helping to spur safe-haven demand.

Bright spots on the large-cap index were utilities stocks and consumer staples, defensive sectors which are attractive for their high dividend payouts.

British American Tobacco (BATS.L) and Reckitt Benckiser (RB.L) were among the companies helping to boost the index.

Among mid-caps, Millennium & Copthorne Hotels (MLC.L) soared 23 percent after Singapore's City Developments offered to buy it out in a deal valuing the hotel group at about 1.8 billion pounds ($2.4 billion).

Hochschild (HOCM.L) and Acacia Mining (ACAA.L) rose 4.3 and 3.7 percent respectively as metals prices gained. [nL4N1MK1TS]

(Reporting by Helen Reid; additional reporting by Danilo Masoni; Editing by Matthew Mpoke Bigg and Jane Merriman)