Miners drag down FTSE on first trading day of 2014

* FTSE 100 down 0.4 pct after 14 pct gain in 2013

* Miners slip after disappointing Chinese data

* FTSE’s medium-term technical outlook seen positive

By Atul Prakash

LONDON, Jan 2 (Reuters) – A sharp sell-off in mining shares following disappointing Chinese factory data pushed down Britain’s top share index on the first trading day of the year after posting its best annual gain in four years in 2013.

The FTSE Mining index fell 1.5 percent, the top decliner on the FTSE 100, after figures showed that factory activity in China, the world’s biggest consumer of metals, slowed in December.

Miners BHP Billiton, Rio Tinto (Xetra: 855018 – news) , Anglo American and Antofagasta (Other OTC: ANFGF – news) dropped 1.6 to 2.7 percent, putting pressure on the FTSE 100, which was down 0.4 percent at 6,723.58 points by 1143 GMT.

“The mining sector was loveless last year and if you don’t get enough metals demand from markets like China and the United States, you might see the FTSE not getting much higher than it is already. That is a big risk for the market,” David Battersby, investment manager at Redmayne-Bentley, said.

“However, in the near term, I would be on the upside for the market. I like those sectors which provide yield, such as infrastructure and financials.”

The UK mining sector fell 16 percent last year, against a gain of more than 14 percent for the blue-chip FTSE 100 index, its best annual gain since 2009. According to a Reuters poll, the benchmark index is likely to hit a new all-time high of 7,100 by end-2014, nearly 6 percent higher from now.

Investors were cautious on the mining sector’s outlook, but did not expect a steep sell-off in the coming months.

“We’re staying underweight on the mining sector, but we’re not excessively pessimistic on that sector either,” said Brown Shipley chief investment officer Peter Botham.

“The Chinese rate of growth will be reduced, but China will still be moving ahead.”

Botham said the FTSE 100 would continue to rise this year and would eventually break through the 7,000 point level, which would mark a record high for the index, although he felt overall returns for investors would be lower in 2014 than 2013.

Technical analysts also saw gains for the FTSE 100 in the next three months before a retreat.

“The monthly candlestick chart shows that the UK index is back at levels that have been reached twice over the last 14 years,” Bill McNamara, technical analyst at Charles Stanley (LSE: CAY.L – news) , said, adding the index could break through this resistance area and trade above 7,000 for the first time.

He said in a note that charts painted a bullish picture for the market at this point, although the upside limit in the first quarter appeared to be around 7,100, after which the index could become vulnerable to a pull back.

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