* FTSE 100 down 0.5 percent
* L&G, insurers down as Lloyds losses stoke jitters
* Commodity stocks pressured by demand outlook
* Defensive drug stocks gain
By Simon Falush
LONDON, Feb 16 (Reuters) - Britain's top share index fell
0.5 percent by midday on Monday, as jitters on insurers' funding
position prompted by bank losses added to gloom on financials,
while the grim economic backdrop pressured commodity stocks.
By 1141 GMT the FTSE 100 <> had fallen 22.14 points to
4,167.45, having lost 0.3 percent on Friday.
Legal & General <LGEN.L> was the heaviest blue chip faller,
down 6.3 percent after the Financial Times said at the weekend
that the life insurer was in talks with the FSA about the amount
of money it should set aside to cover defaults in its bond
portfolio.
L&G said it was not involved in any talks with regulators
beyond routine discussions in the run-up to its full-year
results.
"Worries about capital adequacy picked up speed after the
Lloyds announcement, and the market is convinced they (L&G) are
going to come to the market with a rights issue," said Jim
Wood-Smith, head of research at Williams de Broe.
Lloyds Banking Group <LLOY.L> lost more than 32 percent on
Friday after the lender said its HBOS unit made a pre-tax loss
of 8.5 billion pounds ($12.28 billion), reviving concerns it
could need more state funds or be nationalised.
But Lloyds shares recovered from further losses early on
Monday to gain 5.5 percent by midday.
Other insurers were also under pressure, with Prudential
<PRU.L> down 4.2 percent and Aviva <AV.L> off 2.6 percent.
Meanwhile, domestic and international data highlighting the
harsh economic climate also added to bearish investor sentiment.
DEEPER FALLS
Britain will fall into a deeper economic recession than
previously thought, the Confederation of British Industry said,
as tight credit conditions and a global downturn weigh down on
companies.
Japan sunk deeper into recession with its worst quarterly
contraction in 35 years, and the dire economic outlook further
dented metals prices which hit miners.
"The economic news that the market chooses to focus on
continues to be very poor... and with commodity and equity
pricing, equity investors have no need to go anywhere near them
(commodity stocks)," Wood-Smith said.
BHP Billiton <BLT.L>, Kazakhmys <KAZ.L> and Xstrata <XTA.L>
fell between 1.9 percent and 2.9 percent.
Rio Tinto <RIO.L> lost 3 percent after the Anglo-Australian
mining giant said it is confident the Australian government will
approve its $19.5 billion tie-up with Chinese state-owned
aluminium-maker Chinalco, Rio's strategy chief said on Sunday.
[]
Energy stocks also retreated with crude holding below $38
per barrel.
Royal Dutch Shell <RDSa.L>, BP <BP.L>, BG Group <BG.L> and
Cairn Energy <CNE.L> fell between 0.6 percent and 0.8 percent.
Property Web site Rightmove said asking prices for
properties in England and Wales were a record 9.1 percent lower
in February than last year at an average 216,163 pounds, but
prices were 1.2 percent up on the month.
Defensive pharmaceuticals stocks were in positive territory
as investors sought safety in companies seen as well-placed to
endure the hostile economic climate.
Shire <SHP.L>, which reports results later this week, added
1.6 percent while AstraZeneca <AZN.L> gained 1.1 percent.
Over the weekend, the Group of Seven industrial powers,
fearing a 1930-style resurgence of protectionism, ended crisis
talks in Rome with a pledge to do all they could to combat
recession without distorting free trade.
Trade was set to be relatively light through Monday as the
U.S. market is closed for President's Day.
($1=.6920 Pound)
(Reporting by Simon Falush; Editing by Sharon Lindores)
