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FTSE lags euro zone peers as energy stocks plunge

The London Stock Exchange building is seen in central London September 24, 2009. REUTERS/Stephen Hird

By Sam Wilkin and Francesco Canepa

LONDON (Reuters) - Britain's top equity index lagged its continental peers on Thursday, held back by energy shares as crude prices plunged to fresh four-year lows after oil producing countries decided to keep output unchanged.

Ministers from the Organization of the Petroleum Exporting Countries decided not to cut supply even after crude prices fell by over a third since June. Brent crude hit a 51-month low of $74.36 after the decision.

Companies which rely on oil contracts for their profits, such as Petrofac and Tullow Oil were the biggest faller on a flat FTSE 100 index, falling 6.2 percent and 3.9 percent respectively.

Oil majors Shell and BG, down 3 percent and 3.8 percent, were the biggest drags on the index.

Energy shares knocked 32 points off the FTSE, which was down 1.79 points at 6,727.38 points at 1525 GMT. It lagged a 0.6 percent gain for Germany's DAX and the Euro STOXX 50, supported by expectations of further stimulus measures from the European Central Bank.

The FTSE, which is hovering just below a recent two-month high hit on Wednesday, is roughly flat for the year.

On the flipside, the prospect of lower fuel costs was boosting shares in airlines, with easyJet and IAG the top FTSE risers, up 5 percent and 4.5 percent respectively.

The two airlines, which fly from a number of Scottish airports, were also boosted by expectations that the Scottish Parliament would use new powers it had obtained from Britain to slash taxes on airline passengers.

"If Scotland does slash the (duty) for outbound Scottish flights it should ... create a competitive advantage for airlines using Scottish airports," said David Papier, a sales trader at ETX Capital.

Among single stocks, Smith & Nephew, a manufacturer of medical devices, climbed 2.7 percent on speculation that U.S. firm Stryker was targeting it for a takeover.

Bloomberg reported on Monday, citing unnamed sources, that Stryker was examining a bid for the British firm after a regulatory restriction barring an offer came to an end.

(Additional reporting by Atul Prakash; Editing by Andrew Roche)