* FTSE drops 2.1 percent
* BP slumps as "top kill" fails; crude down 2.6 percent
* Prudential up; AIG snubs revised offer for AIA
By David Brett
LONDON, June 1 (Reuters) - Britain's top shares were down
heavily by midday on Tuesday, as BP <BP.L> plunged 15 percent
after it failed to stem the major oil spill in the Gulf of
Mexico and euro zone growth fears weighed on sentiment.
By 1108 GMT, the FTSE 100 <> was down 107.17 points or
2.1 percent at 5,081.26.
BP, which has had 44 billion pounds ($63.9 billion) wiped
off its value since April 20, accounted for around half of the
blue-chip index's decline after the oil major said its latest
attempt to plug or contain the gushing oil well had failed.
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BP's failure, and a 2.6 percent drop in the crude price
<CLC1> dented sector sentiment, with Royal Dutch Shell <RDSa.L>
down 1.9 percent, and oil explorers Tullow Oil <TLW.L> and Cairn
<CNE.L> off 1.7 and 1.8 percent respectively.
The slide on the blue-chip index added to May's 6.6 percent
fall, its biggest monthly drop since March 2009, on mounting
fears about Europe's huge debt problems and worries about the
impact of austerity measures.
"Growth concerns, on top of BP's woes, are again haunting
investors," Jimmy Yates, head of equities at CMC Markets.
British manufacturing activity held steady in May at the
previous month's 15-year high, but the recovery picture was
clouded by signs of accelerating price pressures.
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"Downbeat comments from the euro zone and China have raised
doubts about the pace of the economic recovery," Yates added.
The European Central Bank warned that euro zone banks face
write-downs of up to 195 billion euros with a "second wave" of
potential loan defaults over the next 18 months. []
Domestic banks Barclays <BARC.L>, Royal Bank of Scotland
<RBS.L> and Lloyds Banking Group <LLOY.L>, were down 1.8-3.2
percent on fears over their potential exposure to the problem.
Spain, the fourth-largest euro zone economy, saw its credit
rating downgraded a notch by Fitch Ratings agency from the
maximum AAA to AA+ late on Friday.
CHINA FRIGHT
Miners were weaker along with metal prices, after
disappointing Chinese data knocked demand sentiment.
China's factories scaled back production last month and
eased back hiring in response to a critical drop in new orders.
[]
BHP Billiton <BLT.L>, Anglo American <AAL.L>, Lonmin <LMI.l>
and Kazakhmys <KAZ.L> fell 2.7-3.9 percent.
Among the few blue-chip risers, Johnson Matthey <JMAT.L>
bucked the sector trend and added 0.8 percent after Citigroup
upped its rating for the metals group to "buy" from "hold" on
valuation grounds, ahead of full-year results due on June 3.
Scottish & Southern Energy <SSE.L> climbed 1.6 percent after
it said it does not plan to acquire a major stake in the UK
electricity distribution networks owned by French utility EDF
<EDF.PA>, which would require raising equity.
Shareholders in Prudential reacted positively after American
International Group turned down the British insurer's revised
offer for its Asian Life insurance unit, AIA.
AIG said it would not consider revising the terms of a deal
in a move that threatens to derail the industry's largest
transaction. []
Prudential shares rose 3.9 percent. Investors had expressed
concerns over the size of the deal, which the British firm was
seeking to cut in value to $30.38 billion.
(Editing by Louise Heavens)
