By Kit Rees and Atul Prakash
LONDON (Reuters) - Britain's top equity index dipped on Friday, with investors showing renewed caution in the wake of the euphoria that followed the U.S. Fed's interest rate hike, but the index was still poised for its biggest weekly gain in a month.
Equity markets around the world retreated after Thursday's gains, as investors focussed again on the underlying weaknesses in the global economy. Most British shares followed suit with the notable exception of the commodity sector, as prices of major industrial metals and oil rose.
"With the FTSE being slightly more weighted in the commodities and energy side of the equation, we were less negative than anyone else ... but I think U.S. negativity is undoubtedly the catalyst for the mild reaction we're seeing here in the UK," Alastair McCaig, market analyst at IG, said.
The blue-chip FTSE 100 index (FTSE) was down 0.6 percent at 6,064.82 points by 1241 GMT, after gaining 0.7 percent in the previous session.
The losses on the FTSE 100 were broad-based, and among the top fallers was microprocessor designer ARM Holdings (L:ARM), down 2.5 percent in a week marred by profit and outlook warnings from chip designers such as Imagination Tech (L:IMG) and Dialog Semiconductor (DE:DLGS).
It was joined by British grocer Mark and Spencer (L:MKS), which retreated nearly 2 percent on a target price cut from Exane BNP Paribas (PA:BNPP).
A triple expiration of futures, index and stocks options also contributed to the dip on the index.
In positive territory, miner Anglo American (L:AAL) was up 4.4 percent, among the top gainers in the index, while BHP Billiton (L:BLT), Rio Tinto (L:RIO), Glencore (L:GLEN) and Antofagasta (L:ANTO) were all up between 0.7 percent to 1.6 percent after metals prices gained following a fall in the U.S. currency, making dollar-priced metals cheaper for holders of other currencies.
"Recent history would indicate that these large swings in the share prices of commodity producers have been characteristic of a downtrend and attempts to catch the falling knife has not been without casualty," Brenda Kelly, head analyst at London Capital Group, said.
UBS analysts said that the mining sector's outlook remained challenging, with valuations not compelling and free cashflow remaining negative or struggling to cover dividends.
However, it saw value in some selective stocks. For 2016, it preferred miners with low costs and strong balance sheets, including Rio Tinto (L:RIO) and Randgold Resources (L:RRS). Over the next two to three years, it liked companies such as Glencore (L:GLEN), BHP Billiton (L:BLT) and Fresnillo (L:FRES).