By Tricia Wright

LONDON (Reuters) – Britain’s top shares traded flat on Wednesday, pegged back by supermarket chain Morrisons which was hit by an analyst downgrade, and stocks trading without the attraction of their latest dividend.

Morrisons shed 2.3 percent as Deutsche Bank cut its rating on the grocer to “sell” from “hold”, largely on valuation grounds. It had jumped some 10 percent from a trough two weeks ago, against a broadly flat showing on the FTSE 100.

“Neither incremental news flow nor fundamental valuation supports the recent share price move… Sales trend has deteriorated and we expect no near-term improvement,” Deutsche Bank said in a note.

The FTSE 100 was down 0.97 points – flat in percentage terms – at 6,801.03 points by 0748 GMT.

Stocks trading ex-dividend, namely Carnival, Compass, HSBC and Intertek, knocked up to 5.42 points off the index on Wednesday.

Traders were losing faith in the idea that the index, which has been underpinned in recent weeks by a burst of deal-making and bids, will reach new highs in the near term.

Last week it climbed to 6,894.88, the highest level since December 1999, when it set a record high of 6,950.60 points. But it has since sold off.

“It is difficult to escape the impression that the UK index is stalling at the previous highs,” Charles Stanley analyst Bill McNamara, said.

Some traders reckon the UK benchmark will sell-off in the near term, and will fail to make much headway until at least mid-year, allowing earnings to catch up after what has proved a lacklustre corporate results season.

As the earnings season draws to a close, across the STOXX Europe 600, 51 percent of companies missed earnings estimates and nearly 60 percent missed analyst expectations for revenue, StarMine data showed.

“With investors starting to take a forensic interest in corporate results, it is not hard to see why a push up to new highs is not necessarily a given at this point,” Charles Stanley’s McNamara said.

He saw the next area of support at around 6,740, which represented a 38.2 percent retracement of the recent rally.

“It feels like we’re somewhere around fair value – we’re still waiting for this improving earnings to filter through,” said Peel Hunt equity strategist Ian Williams.

The FTSE 100 trades on a 12-month forward price/earnings ratio of 13.8 times, against its 10-year average of 11.7 times, Thomson Reuters Datastream shows.

(Reporting by Tricia Wright; Editing by Toby Chopra)