By Alistair Smout

LONDON (Reuters) – The FTSE 100 inched lower to extend a recent slide on Monday, weighed down by an update from Lloyds that demonstrated the banking sector is still to put its problems fully behind it.

Lloyds fell 3.3 percent after it said it had set aside a further 1.8 billion pounds in the fourth quarter to compensate customers mis-sold payment protection insurance (PPI), and dividend payouts were to come later than some in the market had anticipated.

“The PPI side of things is a historic problem that is receding… but with people getting excited about a dividend coming soon, the fact it has been put back removes the reason to own those shares in the short-term,” Zeg Choudhry, head of equities trading at Northland Capital, said, adding that longer term prospects for the stock were better.

“It’s a short-term bump in the road rather than a stock that’s going into reverse.”

In all, financials – a broad based sector which includes banks, asset managers and insurers – trimmed 9.6 points off the index, enough to bring it in to negative territory.

The FTSE 100 was down 1.76 points, essentially flat in percentage terms, at 6,508.68 by 1151 GMT, following last week’s 2.3 percent decline.

Over the last fortnight, the index has lost 4.6 percent, knocked back by concerns over emerging markets.

Unease about slowing Chinese growth and the withdrawal of U.S. monetary stimulus spread from emerging market currencies to the world’s big stock markets, resulting in a 3.5 percent drop for the FTSE in January, its biggest monthly decline since last June and its worst January since 2010.

Alongside the emerging market worries, investor concern has focused on the current earnings season, and whether it will result in profits strong enough to justify lofty valuations after a bumper 2013.

While Monday was quiet on the earnings front, there are plenty of releases later on in the week – from the likes of oil majors BG and BP, drugmakers AstraZeneca and GlaxoSmithKline, and mobile phone group Vodafone.

Vodafone is set to become one of the latest high profile victims of the chaos engulfing the emerging economies of Africa and Asia, readying itself for a big slide in its overseas revenues, weekend press reports said.

“(Earnings have) been particularly ropey in the UK,” Peel Hunt equity strategist Ian Williams said.

“I think one or two investors have realised that valuations are at the top end of that recent range and you can’t afford the number of disappointments on the trading front which we still appear to be getting,” he said.

The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.3 times, against its 10-year average of 11.9 times, Thomson Reuters Datastream shows.

Of the 17 percent of European companies to have reported so far, 44 percent have missed profits expectations, while 46 percent have missed expectations on revenue, Thomson Reuters Starmine data shows.

(Additional reporting by Tricia Wright; Editing by Toby Chopra)