UK's FTSE hovers near 3-month lows on U.S. debt concerns

* FTSE 100 (FTSE: ^FTSE - news) near 3-month lows as U.S. debt concerns weigh

* Morgan Stanley (Xetra: 885836 - news) downgrade hits Vedanta

* FTSE 100 falls below 200-day moving average level

By Sudip Kar-Gupta

LONDON, Oct (KOSDAQ: 039200.KQ - news) 9 (Reuters) - Britain's benchmark equity index hovered near 3-month lows on Wednesday, as a lack of progress in resolving the U.S. budget stalemate dented the stock market.

Although many investors still expected U.S. politicians to reach a deal eventually over the country's budget as well as its debt ceiling, they felt that equity markets would make little progress in October.

The blue-chip FTSE 100 index edged down by 0.1 percent, or 5.53 points, to 6,360.30 points in mid-session trade, to mark its lowest level since early July.

Mining company Vedanta was the hardest-hit FTSE 100 stock, falling 4.7 percent, which traders attributed to the impact of a broker downgrade on the stock by Morgan Stanley.

In late May the FTSE 100 raced to a 13-year high of 6,875.62 points, but it has since lost ground due to expectations of less monetary stimulus in future from the U.S. Federal Reserve. Nevertheless, it remains up 8 percent since the start of 2013.

The market has slipped in October after the U.S. government had to partially shut down this month due to disagreement among politicians over the country's budget.

The U.S. budget standoff has led to concerns about the $16.7 trillion U.S. debt ceiling, which Treasury Secretary Jack Lew has said the government will hit no later than Oct. 17.

"It's all about the stalemate in the States. Markets have been drifting lower off the back of that. The closer we get to October 17, the more likely it is that markets will drift lower until we get there," said APS Alpha technical strategist Adrian Slack.

Slack and other traders said the fact that the FTSE 100 had fallen below its 200 day moving average around 6,410 also pointed to further near-term weakness.

"The near-term bearish trend can be confirmed," said Fawad Razaqzada, market strategist at GFT Markets. (Additional reporting by Tricia Wright; Editing by Hugh Lawson)