* FTSE 100 falls 1.2 pct, led by mining and banks
* Rising U.S. Treasury yields dent recovery hopes
By Catherine Bosley
LONDON, May 28 (Reuters) - Renewed jitters on the health of
the financial sector dented banking stocks on Thursday, while
mining stocks fell on worries about the demand outlook, dragging
Britain's leading share index 1 percent lower by midday.
The fall tracked Wall Street's decline on Wednesday, where
10-year U.S. government bond yields hit a six-month high,
dampening hopes of an economic recovery.
By 1025 GMT, the FTSE 100 <> was down 54.73 points at
4,361.50, after rising for three straight sessions. The UK
benchmark is down 1.6 percent this year but has rallied 26
percent since hitting a six-year low on March 9.
Banks <.FTNMX8350>, which have rallied 109 percent since
March 9 lows, were the day's biggest drag, shaving 14.6 points
off the index.
Barclays <BARC.L>, HSBC <HSBA.L>, Standard Chartered
<STAN.L>, Lloyds Banking Group <LLOY.L> and Royal Bank of
Scotland <RBS.L> dropped 1.4 percent to 2.5 percent.
"The valuations are very stretched on the banks," said Clive
Murray of Investec Asset Management. "The world's got to issue a
gazillion bonds to try and fund some sort of recovery."
"There's the general recession impact that's going to hurt
these banks now," Murray added. "Impairments will only but
increase. That's the harsh reality of it."
In related news, Britain's financial regulator disclosed
details of its 'stress tests', saying it had based them on the
assumption GDP would shrink 6 percent. []
The biggest loser was Man Group <EMG.L>, the world's largest
listed hedge fund firm, whose shares sank 8.0 percent after it
said that assets under management fell to $44 billion by May 26,
from $46.8 billion at end-March [].
Mining shares also fell, in line with softer base metal
prices. BHP Billiton <BLT.L>, Rio Tinto <RIO.L>, Anglo American
<AAL.L>, Xstrata <XTA.L>, Lonmin <LMI.L> and Vedanta Resources
<VED.L> were off 0.9 percent to 2.6 percent.
Meanwhile, oil majors BP <BP.L> and Royal Dutch Shell
<RDSa.L> lost 0.1 and 0.6 percent, respectively, recouping some
earlier losses as U.S. crude <CLc1> continued its climb above
$63 per barrel.
Traders were eyeing the outcome of OPEC's meeting in Vienna,
where the cartel is expected to hold output steady.
[]
DEBT WORRIES
U.S. stocks dropped on Wednesday as rising yields on U.S.
government debt raised worries businesses and consumers could
face higher borrowing costs.
Treasury yields, a benchmark for many lending rates, rose on
concerns about the heavy supply of debt the U.S. will issue.
"We just have to look at JP Morgan's comments last night,"
Murray said. "The credit card debts are mounting much worse than
expected."
J.P. Morgan <JPM.N> said on Wednesday credit card losses
will near 9 percent of its portfolio in the second quarter
[].
Further underscoring concerns about the banking sector, U.S.
regulators said the number of troubled U.S. banks and savings
and loan institutions had soared to a 15-year high in the first
quarter []
Reinforcing the negative tone, data from the Confederation
of British Industry showed retail sales fell more than expected
in May and retailers are expecting a further deterioration next
month. []
Among mid-caps, building supplies company Wolseley <WOS.L>
plunged 15 percent after saying nine-month profit slumped 80
percent, as most of its markets weakened in March and April.
(Editing by Simon Jessop)
