By Carla Mozee, MarketWatch

Tobacco shares rise

LONDON (MarketWatch) -- U.K. stocks fell Thursday, with oil-and-gas shares leading decliners after oil prices were dragged to fresh multiyear lows, but shares of EasyJet PLC outperformed the benchmark FTSE 100.

The FTSE 100 was down 0.2% at 6,813.56, with the oil and gas group losing more than 3%. U.S. oil futures (CLH5) sat at their worst level since March 2009, with a sharp drop in prices triggered Wednesday after a larger-than-expected increase in U.S. crude supplies. Brent crude-oil prices were slightly higher Thursday after losing 2.3% in the previous session.

Shares of oil major Royal Dutch Shell PLC (RDSB) were at the bottom of the FTSE 100 as they dropped 4.3%. Shell was able to post a rise in fourth-quarter profit on a current cost-of-supplies basis -- a metric similar to the net profit reported by U.S. oil companies -- in the face of falling oil prices. That profit rose to $4.2 billion, compared with $2.2 billion in the same period last year. But Shell also plans to reduce capital expenditure by about $15 billion over the next three years.

Also near the bottom of the FTSE 100, shares of oil producer BP PLC (BP) fell 2.2%, BG Group PLC lost 1.7%, and Tullow Oil PLC pulled back 1%.

But soaring to the top of the index was EasyJet PLC . Shares jumped 4.6% after Barclays upgraded the air carrier's rating to overweight from equalweight and raised its price target by 16% to 21.50 pounds ($32.53), citing strong U.K. demand and an attractive EasyJet valuation.

Diageo PLC shares swung higher by 3%. They had been lower earlier after the world's largest liquor company said first-half profit fell 18%, with sales in North America dropping. Diageo's brands include Smirnoff, Guinness and Johnnie Walker.

Also, shares of Imperial Tobacco Group and British American Tobacco PLC were up 1.4% and 0.3%, respectively. Panmure Gordon began coverage of the U.K. tobacco sector with an overweight stance. While it's trading close to its historic valuation high, said Panmure, it's also trading at a significant valuation discount to other European consumer-goods sectors whose products, like tobacco, sell quickly.

Regulatory concerns may increase before the U.K. general election in May, but the completion of the Reynolds American Inc.'s (RAI) purchase of Lorillard Inc. (LO) "would be perceived as a positive for both British American Tobacco and Imperial Tobacco," said Panmure analyst Jonathan Leinster in an note.

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