Commodities and banks hit as debt woes send FTSE lower

By David Brett

LONDON (Reuters) - The top share index was sharply lower on Thursday as global recovery concerns sent commodity stocks and banks down, echoing overnight losses in the U.S. and Asia.

Riskier assets were among the top fallers as concerns mounted over Greece's debt situation and the economic recovery in the United States, after data showed a troubling mix of higher prices and weak growth in the world's biggest economy.

Miners <.ftnmx1770> were the biggest fallers on London's blue chip index, following metal prices lower, as worries grew over future demand for natural resources.

The United States' recovery appears to be hitting a soft patch and China is trying to cool its overheating economy.

"The Chinese economy has undoubtedly slowed as a result of the monetary tightening ... but .. the trough in leading indicators suggests that the pace of slowdown is moderating," said Gerard Lane, equity strategist at Shore Capital.

"As a result the underperformance seen in the first quarter of those stocks with a high degree of emerging market exposure should come to an end."

Glencore was the index's top faller, down 2.5 percent as MF Global initiated coverage on the commodities trader with a "sell" rating.

Deutsche Bank cut its target price on Glencore following the firm's first-quarter update on Tuesday, warning investors to "expect near-term headwinds" although noting the company's business model remained intact.

Glencore's shares are now more than 11 percent below their float price and just a day away from the end of the stabilisation period, during which underwriters to the issue are able to underpin the value of the shares.

ENRC , which has been the focus of bid speculation involving Glencore as it suffers boardroom leadership battles, fell 2.2 percent as Daily Telegraph reported Johannes Sittard, the chairman of Kazakh mining had agreed to stand down from the board following a corporate governance review.

Kazakhmys , a shareholder in ENRC, was down 1.6 percent.

Another commodity-related stock, oil explorer Cairn Energy fell 1.3 percent after announcing a sweeping board shake-up.

DEBT MOUNTAIN

The FTSE 100 (FTSE:^FTSE) was down 40.73 points, or 0.7 percent, at 5,701.82, by 9:02 a.m., adding to its 1 percent decline on Wednesday.

"Since March, the FTSE has been trading inside of a major range of 5591.59 to 6103.73," said Enis Mehmet, analyst at Autochartist.

"Now that the index has broken the key retracement zone of this range, bearish traders can build a case for an even further decline to the March low."

Mounting concerns over global debt weighed on investor sentiment, as uncertainty lingered over Greece's situation and the threat of contagion, while the U.S. nears its 'debt ceiling'.

The Greek prime minister said he would form a new government as euro zone finance ministers conceded that a deal on a second international bailout of the ailing country was now unlikely to be reached at a summit next week.

Debt fatigue weighed on the banking sector <.ftnmx8350>, with Barclays down 1.2 percent as its investors day failed to inspire upgrades from brokers.

The sector was also in the doldrums after Chancellor George Osborne backed the UK Independent Commission on Banking's proposal to ring-fence retail banks from investment banks and set higher capital ratios, with investors uncertain as to how the changes will benefit shareholders.

On the upside, TUI Travel rose 0.9 percent, one of only three gainers on the FTSE 100, boosted by bid talk after newspaper reports that the travel firm could be the focus of a bid from parent company TUI AG .

On the macroeconomic front on Thursday, retail sales for May will be released at 9:30 a.m.

(Editing by Sophie Walker)