BP pressures Britain's FTSE after Ukraine tensions escalate

* FTSE 100 down 0.6 pct

* BP (LSE: BP.L – news) knocks most points off UK benchmark

* Frothy valuations curbing interest in equities

By Tricia Wright

LONDON, April 14 (Reuters) – Britain’s blue chip share index fell on Monday, pressured by heavyweight oil major BP as mounting tensions in Ukraine hit the stock and broader market sentiment.

Towns in eastern Ukraine were bracing for military action from government forces as a deadline passed for pro-Russian separatists to disarm and end their occupation of state buildings or face a major “anti-terrorist” operation.

“We are sticking to the sidelines for now, at least for the next few days to see how the Ukraine situation develops,” Sanlam (Frankfurt: LA6A.F – news) Securities head of trading Mark Ward said.

BP, which has a stake in Russia’s biggest oil producer Rosneft, fell 1.3 percent, knocking around 5 points off the blue chip FTSE 100 index. Some traders were more sanguine.

“This gives you a good opportunity to buy BP,” Joe Rundle, head of trading at ETX Capital, said.

The FTSE 100 index was down 36.39 points, or 0.6 percent, at 6,525.31 points by 0817 GMT, extending Friday’s 1.2 percent decline.

The index last week suffered its biggest weekly loss in a month with a 2 percent drop as fears on Wall Street about over-stretched stock valuations, particularly in the technology sector, spread to Europe.

The UK benchmark, which got close to its best level since early 2000 in January, is now down more than 3 percent this year.

Technology company ARM was among the worst-performing stocks on the FTSE 100 on Monday. Its weakness followed a 1.3 percent fall in the U.S. technology benchmark index, Nasdaq, on Friday.

ARM, whose chip designs feature in most smartphones, fell 1.9 percent in relatively brisk trade.

The pullback underscored worries over the outlook for share prices more broadly.

Lofty valuations are preventing investors from putting more money to work in equities. The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.2 times, against its five-year average of 11 times, Thomson Reuters Datastream shows.

“The issue is that the valuations are pricing in an improvement (in corporate earnings) that we haven’t seen yet,” Peel Hunt equity strategist Ian Williams, said.

“I think risk aversion is going to remain fairly elevated until you get some sign of stability on particularly the sectors that got clobbered last week.” (Editing by Susan Fenton)