By Atul Prakash

LONDON (Reuters) – FTSE steadied near a seven-week high on Wednesday, with a rally in energy stocks on the back of stronger Royal Dutch Shell offsetting fresh tensions in Ukraine and poor U.S. growth data.

Investors traded cautiously ahead of the Fed’s likely move on Wednesday to further trim its stimulus programme, and as data showed the U.S. economy grew at a sharply lower-than-expected pace in the first quarter. Unrest in Ukraine also weighed. (Full Story)

However, Shell shares RDSa.L, up 3.7 percent, supported the market by adding the most points to the FTSE 100 .FTSE. Shell reported a jump in first-quarter cashflows and a boost in dividends, helping the UK oil and gas index .FTNMX0530 to gain 1.7 percent to hit a two-year high.

“The latest results are very reassuring and highlight that the group remains on track with its strategy,” Jonathan Jackson, head of equities at Killik & Co, said, referring to Shell.

“We remain positive on the shares, which offer an attractive dividend yield, growing in real terms, and the prospect of value being unlocked from disposals.”

The broader FTSE 100 index was flat at 6,771.34 points by 1604 BST. The benchmark index hit an intraday high of 6,794.88, the highest levels since early March, before surrendering gains.

The index has surged more than 4 percent over the past two weeks, helped by a rise in mergers and acquisition activity, charts show.

Industrial group Rolls-Royce RR.L rose 2.7 percent after entering talks with Germany’s Siemens AG SIEGn.DE to sell a unit that makes equipment for the oil and gas industry and power-generation gear for utilities.


“With a largely upbeat earnings season, combined with M&A activity driving capital inflows, there is a real chance markets can keep the momentum going and break higher,” Mike McCudden, head of derivatives at Interactive Investor, said.

“From a technical perspective, all major indices remain in a short-term bullish trajectory. So going against the trend at current levels is a very risky strategy indeed.”

However, analysts said a sharp rise in tension in Ukraine could derail the positive momentum. The situation in the region remained fragile as pro-Russian separatists seized government offices in more Ukrainian towns.

Attempts to contain the insurgency by the government in Kiev have proved largely unsuccessful, with security forces repeatedly outmanoeuvred by the separatists. The West and the new Ukrainian government accuse Russia of being behind the unrest, a charge Moscow denies.

While Britain’s top 100 companies make only 0.3 percent of their sales to eastern Europe, Thomson Reuters Datastream shows, tension between Russia and the West and the prospect of costly sanctions has lowered appetite for assets which depend on economic growth, such as shares.

“Positive corporate and economic data in recent weeks have unfortunately more or less been neutralised by the events unfolding in Ukraine. For now we are looking to sell into rallies and to buy on weakness,” Peregrine & Black senior sales trader Markus Huber said.

Among other sharp movers, British American Tobacco BATS.L fell 2.2 percent after recording a 12-percent drop in quarterly revenue, which it blamed on adverse foreign exchange moves. Excluding the impact of exchange rates, revenue rose 2 percent.

Nine blue chips, including supermarket Tesco TSCO.L traded ex-dividend, knocking a combined 6.53 points off the FTSE. Tesco shares were down 3.4 percent.

(Additional reporting by Francesco Canepa and Tricia Wright; Editing by Alison Williams)