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FTSE rebounds following selloff

Friday, February 22 09:18:50

Britain's blue chip shares rebounded in early trade today after sharp falls the previous session, led by mining and financial stocks, but traders said gains could be stifled ahead of the weekend election in Italy.

By 0901 GMT, the FTSE 100 was up 43.95 points, or 0.7 percent, at 6,335.49, having suffered its sharpest one-day fall since July on Thursday on concerns the Federal Reserve could end its stimulus programme sooner than expected -- thus removing a driver of the recent equity rally.

Volatility - a crude gauge of investor fear - has spiked 20 percent over the last two days, although the index remains near historic lows.

"We are having a bounce from yesterday's sell off aided by overnight Asian markets, although headwinds such as the Italian election could curb any rally, so I see selling pressure as likely to re-emerge," Securequity sales trader Jawaid Afsar said.

Investors in Europe have been seeking protection against the risk that Italian elections next week could produce a political stalemate that will make fiscal reforms more difficult to implement.

Volumes on the FTSE 100 index were weak too suggesting most investors are unwilling to trade too much ahead of Italy's election.

The FTSE 100, however, did find some technical support after pulling back within the three-month up-trend - from lows reached in November 2012, according to Westhouse's technical analyst Dominic Hawker.

Smacked down miners and financials added most points to the index 9.8 and 9, respectively, as investors cautiously bought back in on the dips.

Top individual gainers, however, were retail related. Luxury goods firm Burberry climbed 2.2 percent with traders citing recent comment from Berenberg which suggested the company might become a bid target for French firm LVMH .

Britain's third-largest supermarket chain Sainsbury rallied 2 percent with traders citing bullish comment from two investment banks bolstering the stock's appeal.

Security firm G4S was the standout faller on the FTSE 100, down 1.1 percent with traders citing HSBC's downgrade on the firm to "underweight" from "neutral" as the catalyst.

"We think the market is disproportionately focused on G4S' UK public sector travails, which is 10 percent of group revenues," HSBC said in a note.

"Instead, a much bigger risk is building. Manned security pricing is very weak in many developed markets, which makes cost recovery difficult and squeezes gross margins," it said. ( C) Reuters