* FTSE 100 lower by midday, down after 8 days of gains
* Water utilities weak as regulator orders cut in bills * Gains in miners, banks adds support to index
By Harpreet Bhal
LONDON, July 23 (Reuters) - Britain's blue-chip shares retreated by midday on Thursday, weighed by weak tobacco, oil and water stocks, but gains in miners and banks provided some support for the index.
By 1053 GMT the FTSE 100 was down 0.4 percent, or 19.86 points at 4,473.87, after gaining 0.3 percent on Wednesday to close at 4,493.73, its longest winning run since December 2003.
The recent gains, which added over 8 percent to the index, were spurred in large part by stronger-than-expected second-quarter results from U.S. companies, but uncertainty about future performance is now curbing investor enthusiasm.
"Everybody's looking down from the great height we've achieved and wondering where we go from here, there's a reassessment after the sharp gains," said Grahame Exton, fund manager at Tilney Investment Management."
Water utilities were under pressure as regulator OFWAT ordered a 4 percent cut to household water bills over the next five years, and said it would allow companies to make a return on their capital at the low end of expectations.
Pennon Group, Severn Trent and United Utilities fell 3.4 - 7.1 percent.
Energy firms were also weak, as oil prices fell to $65.25. Royal Dutch Shell, BG Group, Tullow Oil and Cairn Energy fell between 0.1 and 1.4 percent, while BP bucked the trend to rise close to 0.1 percent.
Tobacco stocks fell, with British American Tobacco and Imperial Tobacco both shedding around 1.7 percent.
Catering group Compass was off 8.1 percent, the biggest faller on the index, after the firm said sales growth slowed in the third quarter and looked set to weaken further..
UK POLITICAL WOES
On the macroeconomic front, June retail sales in Britain showed a jump of three times the rate expected by analysts, as hot weather and early summer discounting boosted sales of clothing.
However, while the pound gained ground after the data, the equity market shrugged off the data.
Meanwhile, political uncertainty could return to haunt investors as voters head for the polls in a by-election in Norwich, east England on Thursday, where prime minister Gordon Brown faces a test of his leadership of the ruling Labour party.
A poor result for the Labour party threatens to embolden party dissidents who last month conspired to unseat Brown.
Gains in mining stocks, which bounced back despite softer metal prices after weakness in the previous session, lent the index support.
Rio Tinto, Kazakhmys, Anglo American, Lonmin and BHP Billiton added between 1 and 3.2 percent.
Similarly banks were also in demand after a retreat the previous session. HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds Banking Group added 1.1 to 2.2 percent, while Barclays lost 1.4 percent.
National Express featured among the top mid-cap risers, up 4.2 percent after the bus and train operator said after the close on Wednesday it had received a takeover approach from an unnamed suitor after rival FirstGroup ruled out a formal takeover offer for the company. Investors will likely focus on the latest U.S weekly jobless claims and June existing home sales numbers later in the session. (Additional reporting by Simon Falush; Editing by Rupert Winchester) ((harpreet.bhal@thomsonreuters.com; +44 207 542 4533; Reuters Messaging: harpreet.bhal.thomsonreuters.com@reuters.net))