FTSE: French downgrade halts UK share surge

By 0847 GMT, Britain's FTSE 100 was down 0.2%, or 12.23 points, at 5,725.43, having rallied 2.4% on Monday on optimism U.S. lawmakers would soon come to some agreement over a fiscal compromise.

The rally hauled the blue-chip index back within its recent tight trading range but technical analysts said the index might find resistance around the 5,750 level before making further progress.

Despite optimism rising over an agreement in the United States, a deal has yet to be struck, while Moody's removing France's coveted AAA credit rating, although expected, was a sober reminder of the hurdles facing the outlook and stability for the global economy.

"What is very clear is that we are in for a prolonged period of slow growth," Robert Farago, head of asset allocation at Schroders, said. "What is less clear is whether we'll have a downturn triggered by the U.S. fiscal cliff or the euro zone debt crisis."

Outlook worries have put pressure on corporate earnings, leading analysts to cut earnings forecasts for the fourth-quarter by around 3%.

That uncertainty has kept the FTSE 100 pegged mainly in a tight range between 5,700 and 5,900 for around 10 weeks.

Riskier assets, which helped to propel the market higher in the previous session, were Tuesday's biggest fallers with banking and commodity-related sectors weighing on the index.

Illustrating investor caution early on Tuesday, the FTSE 100 had traded just 6% of its 90-day average daily volume in what is traditionally one of the busiest periods of the day.

The top gainer on the index was Intercontinental Hotels, up 2.1%, as traders latched onto Barclays upgrade of the hotelier to "overweight" from "equalweight".