LONDON: Britain's FTSE 100 consolidated recent gains early on Thursday after it had smashed through the 6,000 level for the first time in 17 months in the previous session.
By 0851 GMT, London's blue-chip index was up 0.54 of a point at 6,027.91. It hit its highest level since July 2011 on Wednesday after the United States secured a deal to stave off a series of tax hikes and spending cuts that threatened economic recovery.
The agreement, however, only delayed even bigger budget battles and potentially sets up further bruising showdowns over the next two months on spending cuts and an increase in the nation's limit on borrowing.
"The rally seems to have been somewhat overdone and we would expect some pull-back," Securequity sales trader Jawaid Afsar said.
"Short term we remain bullish but medium term, ahead of debt ceiling discussions in the US, we are more cautious as this is a larger issue to tackle and one which faces possible downgrades from debt agencies," he said.
Afsar said some areas of the market were beginning to look a little overbought including banks and miners , which led the fallers on Thursday, while oils , another of the previous session's big risers, also retreated.
Deutsche Bank said investors need to get used to a FTSE above 6,000 again and targeted 6,575 for the end of 2013, but with markets already at multi-month highs strategists suggested investors will need to become more picky in their stock selections in the coming year.
"In our view, an old-fashioned focus on virtues such as long-term investment in well-managed companies with strong cash-flow and sustainable growth is not 'risky' but the safest option available," Max King, strategist in the Investec Asset Management Multi-Asset team, said in a note.
Services firms suffered contrasting fortunes as Compass Group, the world's biggest caterer, became the main individual faller, down 2.1 percent after Espírito Santo Investment Bank cut its rating on the company to "neutral" from "buy", citing valuation grounds.
"We now believe the rating encapsulates the near-term opportunity. Cyclical pressure in Europe will limit organic growth and impede earnings progression through 2013, despite accelerated efficiencies," Espirito said in a note.
Compass Group trades on a forward 12-month price-to-earnings smart estimate of 15.6 times, 10 percent higher than its historical average, according to Thomson Reuters Starmine Data.
Conversely, Espirito upgraded its rating on British outsourcer Serco to "buy" from "neutral" saying the relative share price underperformance through 2012 has created an unwarranted valuation discount to peers.
Serco was up 1 percent, having fallen 8.5 percent in the last three months of 2012, compared with a 1.2 percent decline for peer Capita and 3.8 percent rise on the FTSE 100.
On the upside, Next gave a boost to the retailers and rose 2.7 percent after the fashion firm met fourth-quarter sales forecasts and lifted annual profit guidance, in a strong start to the festive trading update season.
Next's earnings quality score rose to 100 from 95 after its previous filing in June, which suggests the composition of earnings in the recent past is robust enough for its growth rate to be sustainable, according to Thomson Reuters Starmine data.
Next remains the darling of the retailers among investors having gained 85 percent in the last two years.
Center>Copyright Reuters, 2013