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FTSE extends retreat from record highs as property stocks fall

* Blue-chip FTSE 100 index falls 0.7 percent

* FTSE retreats further from record high

* CRH (NYSE: CRH - news) hit by prospect of sooner U.S. rate rise

* Real estate stocks underperform

By Sudip Kar-Gupta

LONDON, March 9 (Reuters) - Britain's top share index extended its retreat from record highs on Monday as property shares fell as a rise in gilt yields made interest rate-sensitive stocks paying similar dividends less attractive than lower-risk government debt.

The blue-chip FTSE 100 index was down 0.7 percent at 6,867.12 points, extending Friday's decline and pushing the FTSE further away from a record high of 6,974.26 set last week.

Property stocks were among the worst performers on the FTSE, mainly due to a rise in UK gilt yields.

The premium that British government bonds offer over German Bunds rose to its highest in almost 18 years on Monday, after the European Central Bank began its bond-buying programme and sent euro zone debt prices soaring.

That yield premium had already widened on Friday after robust labour data from the United States raised expectations that U.S. interest rates would rise sooner.

The prospect of higher U.S. rates hit Irish construction group CRH. CRH is the leading producer of asphalt for highway construction in the United States, and its shares fell 3.5 percent, making it the worst performer in the FTSE 100.

"CRH is one of the largest building materials companies in North America, and we're witnessing some profit taking on the increased risk of rates increasing sooner rather than later," Charles Hanover Investments, Dafydd Davies, said.

The backdrop of rising rates also hit property stocks such as Land Securities (LSE: LAND.L - news) and British Land (LSE: BLND.L - news) . The higher dividend yields offered by property stocks lose their appeal when interest rates are rising.

Other highly geared equity sectors underperformed as well on Monday, including utilities, with United Utilities (LSE: UU.L - news) down 0.7 percent while Severn Trent (Other OTC: STRNY - news) slipped 0.4 percent.

However, WPP (LSE: WPP.L - news) , the world's biggest advertising group. gained 0.9 percent after saying demand had improved in January.

Brown Shipley fund manager John Smith said he did not expect the UK stock market to make much progress, with U.S interest rates expected to rise and uncertainty growing before a British general election in May.

"Equity markets were overbought and some pullback has been likely. With the first rise in U.S. interest rates perhaps coming as early as June and uncertainties about the UK general election, the upside for equities markets looks limited," he said. (Additional reporting by Atul Prakash; Editing by Louise Ireland (Other OTC: IRLD - news) )