* FTSE down 3 percent by midday
* Energy, mining shares fall, tracking commodities prices
* Banks continue to struggle, but Lloyds TSB, RBS gain
By Atul Prakash
LONDON, Oct 16 (Reuters) - Britain's top share index was 3
percent lower at midday on Thursday as mounting concerns of
global recession weighed on financials, with commodity shares
also under pressure after sharp declines in crude and metals
prices.
By 1121 GMT, the FTSE 100 <> was down 123.3 points at
3,956.3 points, above an earlier low of 3,840.6, after losing
7.2 percent on Wednesday. The index has erased most of the 12
percent rebound seen in the previous two sessions after
plummeting 21 percent last week.
The benchmark index is down 39 percent so far this year.
The slide in UK stocks followed a fall of more than 11
percent in Japan's Nikkei <> on Thursday and steep losses
in U.S. stocks on Wednesday, the biggest one-day slide since the
1987 market crash, as bleak economic data fed worries the
efforts to unlock credit markets may not stave off a severe
recession.
Energy stocks took most points off the UK index, tracking a
2.5 percent fall in crude that traded around $72 a barrel --
about half the record high seen earlier this year.
BP <BP.L> fell 1.2 percent, Royal Dutch Shell <RDSa.L> lost
4.6 percent, gas producer BG Group <BG.L> shed 1.1 percent and
Cairn Energy <CNE.L> lost 0.5 percent.
"At the moment, it's a case of not expecting too much too
soon, but may be looking to accumulate investments over a period
of time," said Keith Bowman, analyst at Hargreaves Lansdown.
"In theory, now should be a much better time to buy than it
was just 18 months ago, but you need not necessarily have to
commit all your money in one go ... Recessionary concerns are
being built into stocks."
European Union leaders were expected to call on Thursday for
action to counter an economic slowdown and support industry amid
the worst financial crisis for 80 years, a draft summit
statement showed.
The 27 leaders said a forthcoming international summit to
reform the global financial system should take early decisions
on transparency, global standards of regulation, cross-border
supervision and an early warning system to restore confidence.
Banks struggled, with traders taking note of U.S. Federal
Reserve Chairman Ben Bernanke's warning of tough times ahead.
Barclays <BARC.L>, HBOS <HBOS.L> and Standard Chartered <STAN.L>
fell between 2.8 and 6.4 percent.
But shares in Lloyds TSB <LLOY.L> and Royal Bank of Scotland
<RBS.L> climbed 3.6 and 1 percent respectively on hopes the
government will reverse its decision to ban dividends at banks
set to benefit from its 37 billion pound cash injection.
Royal Bank of Scotland was also buoyed by a Financial Times
report that private equity firm CVC Capital Partners was in
talks to take a controlling stake in the bank's UK insurance
assets.
OPTIMISM EVAPORATES
Investors shrugged off recent optimism about massive
government efforts to prop up the global financial system.
"Banks are under pressure. We probably can't expect that the
banks are going to start to produce good returns any time soon,"
said Peter Dixon, UK economist at Commerzbank.
"Markets obviously expect a very deep recession on both
sides of Atlantic."
Mining stocks fell on the recession sentiment and a drop in
metals prices. Copper hit a three-year low before paring losses,
while nickel slipped 6 percent and platinum dropped by 4 percent
before recovering.
BHP Billiton <BLT.L>, Anglo American <AAL.L>, Vedanta
Resources <VED.L>, Lonmin <LMI.L> and Xstrata <XTA.L> all fell
between 3.0 and 6.4 percent.
Rio Tinto <RIO.L> was down 5.1 percent. The Daily Telegraph
said Aluminium Corp of China was in talks with the liquidators
of collapsed bank Lehman Brothers <LEHMQ.PK> to free up billions
of dollars in shares Chinalco owns in miner Rio Tinto.
Tour operator TUI Travel <TT.L> was the biggest decliner. It
shed 22.4 percent after Germany's TUI AG <TUIGn.DE> said it did
not intend for now to make an offer for TUI Travel.
Legal and General Group <LGEN.L> fell 3.5 percent after the
company said it remained cautious about the economic outlook,
but was confident that it was well positioned to exploit
opportunities throughout the current economic cycle.
(Editing by Quentin Bryar)
