By Helen Reid
LONDON (Reuters) - British shares steadied on Wednesday as investors' anticipation of a rate rise from the U.S. Federal Reserve drove financial stocks higher while high-yielding consumer stocks suffered.
The FTSE 100 and mid-cap indices ended less than 0.1 percent lower, outperforming the broader European market which fell ahead of the rate decision.
The prospect of rising rates in the United States drove sector performance on Wednesday, boosting financials while dragging on housebuilders and consumer stocks.
"The market does seem to have rotated a little bit into HSBC and financials. It's a little bit of an inflation trade coming back on with a return to the banks," said Colin McLean, CEO of SVM Asset Management in Edinburgh.
Financials were the best performers, led by HSBC, whose international footprint makes it easier for it to benefit from higher U.S. rates. The stock was up 1.5 percent and the strongest boost to the index.
Barclays also gained 1.6 percent.
Among fund managers, retail platform Hargreaves Lansdown made strong gains, up 4.4 percent at the top of the FTSE, while Schroders rose 1.6 percent.
Mid-cap fund management stocks Jupiter and Rathbone Brothers also climbed.
Asset managers also stand to gain from higher interest rates incentivising saving.
Housebuilders, which have benefited from historically low interest rates, were broadly lower.
Barratt Development, Taylor Wimpey and Persimmon all fell.
Ashtead fell back from the previous session's rally, down 5.4 percent at the bottom of the FTSE after top management offloaded shares in the industrial equipment hire group.
Regulatory filings showed the CEO, CFO and COO all sold shares on Tuesday.
A profit warning from Innogy based on poor performance in its British retail energy arm npower weighed on German utilities as well as Britain's Centrica, down 3.7 percent.
Serco jumped 6.4 percent after the outsourcer reported a much rosier outlook for 2018 profit, saying it would come in at the top end of its range. [nL8N1OD177]
"We note that with the provisions utilisation continuing as expected, free cash generation is set to turn positive through 2018 - at last a positive and addressable valuation metric emerges," wrote ShoreCap analyst Robin Speakman.
"In sum, encouraging, but still with tough markets evident," he added, reiterating the broker's 'hold' recommendation.
Dixons Carphone jumped 8.5 percent after reporting strong Black Friday trading and maintaining the first-half dividend. These positives outweighed a slump in profits caused by weaker mobile phone markets.
In small-caps, shares in material technology firm Zotefoams were boosted 14 percent after the company announced a partnership with Nike to supply it with foam technology.
The gap between valuations of the FTSE 100 and U.S. benchmark S&P 500 has widened strongly since the Brexit vote, analysts at Man Group found.
While this is partly down to U.S. stocks becoming more expensive, it could also reflect investors' Brexit anxiety, they said, adding the trend could reverse if last Friday's negotiations breakthrough was a turning point.
"Certainly international investors have been shunning the FTSE until Brexit is sorted. Money will come back when that happens," said SVM's McLean.
(Additional reporting by Danilo Masoni, Editing by Matthew Mpoke Bigg and Ken Ferris)