* FTSE 100 gains 1.1 pct recovers from 4-yr low
* Banks hammered on funding concerns
* Miners, energy stocks up on rising commodities
(For full coverage of financial turmoil, click on [])
(Adds detail)
By Simon Falush
LONDON, Oct 7 (Reuters) - Britain's top share index crept
back from a four-year low set earlier in the session by midday
on Tuesday, as gains in energy stocks outweighed heavy losses in
the ailing banking sector in volatile trade.
The biggest single cut in Australian interest rates since
1992 lifted stocks in Asia and helped commodity and oil prices
recover from their heavy falls the previous session.
But in see-sawing trade, the FTSE 100 <> swung into
negative territory as banking stocks tumbled, before clawing
back some of the dramatic losses it posted the previous session.
By 1101 GMT the FTSE 100 was up 52.2 points at 4,641.4 after
posting its biggest-ever one-day points fall to a four-year low
on Monday. The index is down 28.1 percent for the year.
Energy stocks benefited from higher crude prices <CLc1> with
BP <BP.L> up 0.8 percent, and Royal Dutch Shell <RDSa.L> gaining
0.9 percent.
Miners gained as metals recovered, helped by the Australian
rate cut move, with Lonmin <LMI.L>, Anglo American <AAL.L> and
Fresnillo <FRES.L> up between 0.8 and 2.9 percent.
Banks were once again in the red adding to heavy losses they
saw on Monday, as jitters on the sector came to the forefront
again with traders citing media reports that the UK government
may invest billions of pounds in banks including Royal Bank of
Scotland <RBS.L>.
Barclays' <BARC.L> chief executive John Varley said it has
not requested capital from the UK government and it has no
reason to do so, RBS declined to comment.
RBS fell as low as 90 pence, its lowest in almost 15 years
before recovering to 113 pence, still down 24 percent on the
day.
Barclays fell 4 percent, Lloyds <LLOY.L> lost 9 percent. But
not all banks were in negative territory; HSBC <HSBA.L> gained
2.8 percent.
An industry source told Reuters that the British government
and banks would discuss the structure of any recapitalisation
over the "next couple of days."
UK finance minister Alastair Darling said on Monday that a
banking bill would be introduced to parliament later on Tuesday.
SWEDISH SOLUTION?
"Falls that were seen before were blamed on short selling or
rumours but now it's much more clearly being derived from
concerns coming straight out of the credit market," said Colin
McLean, managing director at SVM Asset Management.
"There's potential perhaps for the UK moving to a more
Swedish solution (introduced) in the early 90's where there was
a combination of interventions including buying stock and
providing liquidity and that might mean no dividends for a while
and a degree of state control," McLean said.
Sentiment on the banking sector was also heavily weighed by
Iceland battling to stave off national bankruptcy after its
banks took on massive debts in expanding overseas.
Embattled HBOS <HBOS.L> fell 14 percent, reversing opening
gains made after Commonwealth Bank of Australia <CBA.AX> said it
had started exclusive talks with the British mortgage bank about
a potential takeover of its Australian operation BankWest.
The Reserve Bank of Australia unexpectedly cut interest
rates by 1 percent and speculation is now mounting that the Bank
of England will cut rates from the current 5 percent by as much
as 50 basis points when it meets on Thursday.
Sterling fell to a 2-1/2 year low against the dollar <GBP=>
and further grim news on the economy with British manufacturing
output falling more than expected for a sixth straight month to
post its longest losing streak since 1980, official data showed.
Click on [].
Defensive pharmaceuticals stocks were supported with
GlaxoSmithKline <GSK.L> up 1.4 percent and Shire <SHP.L> adding
3.1 percent.
Other defensive stocks such as drinks groups Diageo <DGE.L>
and SABMiller <SAB.L> were also among the top gainers, up 8.1
and 5.1 percent, respectively.
(Editing by Hans Peters)
