FTSE ends down despite cenbank action, HBOS deal

                                
 * FTSE 100 down 0.7 pct; cenbanks move discounted
                                
 * Banks rally reversed; but HBOS bounces on Lloyds TSB deal
                                
 * Stores up after retail sales recover, Kingfisher results
                                
 By Jon Hopkins
                                
 LONDON, Sept 18 (Reuters) - Britain's top share index ended
0.7 percent lower on Thursday in choppy trade as volatility
reigned despite a concerted move by central banks to boost
liquidity and Lloyds TSB's <LLOY.L> deal to buy HBOS <HBOS.L>.
                                
 Investors were also edgy ahead of Friday's futures and
options expiries.
                                
 The FTSE 100 index <.FTSE> closed 32.4 points lower at
4,880.0 with a jump back above the 5,000 barrier to a session
peak of 5,015.9 proving short-lived as the bulls and the bears
battled over the psychologically important level.
                                
 The UK benchmark lost 2.3 percent in highly volatile trading
on Wednesday, and is down nearly 8 percent on the week.
                                
 The turmoil in the markets prompted the Federal Reserve and
other central banks to pump billions of dollars into the global
money markets in a coordinated effort to ease a funding squeeze.
Click on [ID:nSP309535]
                                
 The move initially allayed some of the fears on the health
of the global financial system that has seen investors dump
shares.
                                
 "Although the bounce off the lows is at least a step in the
right direction, the impact still has to be seen as cautious at
best," said David Evans, market analyst at BetOnMarkets.com.
                                
 "Today, investors and financial institutions have shut the
door on the financial apocalypse, but the storm is still there.
It will be some time before investors will step outside
confidently from the safety of the sidelines," Evans added.
                                
  U.S. stocks <.DJI> <.SPX> <.IXIC> also traded lower as talk
swirled of a merger of Morgan Stanley <MS.N> and Wachovia <WB.N>
 after the demise of Lehman Brothers <LEH.N> and bailout of
American International Group <AIG.N>.
                                
 In London Lloyds TSB sealed a 12.2 billion pound ($21.7
billion) deal to buy HBOS <HBOS.L>, Britain's largest mortgage
bank, to create a dominant mortgage and savings provider.
                                
 HBOS shares, which have taken a battering this week on
funding worries, gained 17 percent on the takeover by Lloyds
TSB, which fell 18 percent.
                                
 Other banking stocks saw earlier advances erased. Royal Bank
of Scotland <RBS.L> shed 4.5 percent and Standard Chartered lost
1.9 percent.
                                
 Barclays <BARC.L> dropped 5.3 percent after a placing of 226
million shares at 310 pence each raised 701 million pounds to
give it additional resources to absorb the acquisition of Lehman
Brother's North American investment banking operations,
announced on Wednesday.
                                
 But other financial stocks managed to hang on to gains, with
London Stock Exchange <LSE.L> adding 7.8 percent. Traders cited
increased volumes and talk that rival platform Turquoise may
suffer as a result of its backing by embattled investment banks.
                                
 Aviva <AV.L> was 4.9 percent higher after Keefe, Bruyette &
Woods said it saw the firm as one of those benefiting most among
UK insurers from the competitive weakening of AIG.
                                
 BA, OLD MUTUAL HIT
                                
 British Airways <BAY.L> lost 11 percent as investors fretted
over the twin threats of a fall in business class passengers
caused by the financial crisis and a 1.5 billion pound pension
deficit, analysts said.
                                
 Insurer Old Mutual <OML.L> sank 15.5 percent after it said
it had a $237 million exposure to AIG.
                                
 But news from the High Street was positive as back-to-school
shopping trips gave UK retail sales an unexpected boost in
August [ID:nLI436043]. Clothing retailer Next <NXT.L> added 3.7
percent and Marks & Spencer <MKS.L> gained 2.3 percent.
                                
 Europe's largest home improvements retailer Kingfisher
<KGF.L> gained 9.7 percent as it beat first-half profit
forecasts and said cost cuts would help it cope with very tough
trading conditions. [ID:nLI312830]
                                
 "Whilst the sector as a whole is finding cheer off the back
of the better than expected retail sales data we saw this
morning, with oil having bounded back over $100/barrel in recent
trade again there's no real suggestion that disposable incomes
will start rising again in the near term," said David Fineberg,
dealer at CMC Markets.
                                
 Pubs operator Enterprise Inns <ETI.L> gained 5.4 percent
after Goldman Sachs raised its rating to "neutral" from "sell"
after recent share price weakness, keeping its 230 pence price
target unchanged.
 (Editing by Sue Thomas)