* FTSE down 1.6 pct after BoE report echoes Fed sentiment
* Banks biggest fallers
* Miners, energy firm slide as data hit commodities demand
By David Brett
LONDON, Aug 11 (Reuters) - Britain's top shares were sharply
lower at midday on Wednesday, as banks led a broad-based
sell-off after the Bank of England (BoE) inflation report echoed
worries in the U.S. over the economic recovery.
By 1046 GMT the FTSE 100 <> index was down 85.86
points, or 1.6 percent, at 5,290.55, having shed 0.6 percent to
5,376.41 on Tuesday.
Banks were the hardest hit as the BoE indicated that
interest rates would remain low for longer and it lowered its
forecasts for Britain's economic growth.
Lloyds Banking Group <LLOY.L>, Barclays <BARC.L> and Royal
Bank of Scotland <RBS.L> fell 3.0-3.6 percent.
British inflation will fall to well below its 2 percent
target in two years, even if interest rates remain at their
record low, the Bank of England forecast on Wednesday, leaving
scope for further policy easing if the economy worsens.
[]
Growth is expected to be slower -- seen at a rate of just
over 3 percent in two years' time, down from 3.6 percent --
because of the extra fiscal tightening announced in the June
budget, weaker business and consumer sentiment and credit
conditions remaining tighter than the central bank had expected.
"Markets have been struggling to see the positives for the
last few days and they have looked vulnerable ... What we have
seen in the last 24 hours has added to concerns that the stock
market recovery has got ahead of the real recovery," said David
Jones, chief market strategist at IG Index.
Earlier, the Office for National Statistics said the number
of people claiming jobless benefit fell in July, though the pace
of improvement is unlikely to be maintained once government
spending cuts kick in, leading to public sector job losses
tipped to exceed half a million. []
U.S. CONCERNS
Markets were already under pressure after the U.S. Federal
Reserve's Open Market Committee said on Tuesday it would use
proceeds from maturing mortgage bonds to buy longer-term
government debt to keep borrowing costs low. []
The move, a stark warning that the recovery of the world's
largest economy was losing pace, failed to convince investors
the action would swiftly resolve a weak employment market or
boost demand significantly.
"We were expecting major quantitative easing (QE), and what
we got was QE light," said James Hughes, market analyst at CMC
Markets.
U.S. stock index futures <SPc1> <DJc1> <NDc1> pointed to a
lower open on Wall Street on Wednesday.
In London, energy and mining companies were weaker, in line
with falling crude <CLc1> and metal prices, as the outlook for
demand darkened.
Energy shares BP <BP.L>, Royal Dutch Shell <RDSa.L> and BG
Group <BG.L> shed 0.7-2.0 percent.
An approaching storm in the Gulf of Mexico will delay by two
to three days BP's work on a relief well to permanently plug the
world's worst offshore oil spill, a U.S. official said on
Tuesday. []
Kazakhmys <KAZ.L>, down 3.1 percent, and Rio Tinto <RIO.L>,
off 3.2 percent, were the top fallers in the mining sector.
Barclays <BARC.L>, BT Group <BT.L>, Rio Tinto <RIO.L> RSA
Insurance <RSA.L>, Schroders <SDR.L>, Standard Chartered
<STAN.L>, and Unilever <ULVR.L> all went ex-dividend, knocking a
total of 6.1 points off the index.
Approaching midday, there were only three risers on the FTSE
100, with technology firm Smiths Group <SMIN.L> up 2.7 percent,
extending the previous session's 2.1 percent rise, as traders
cited hopes the group would be broken up after its successful
restructuring.
(Editing by Will Waterman)
