*FTSE 100 falls 2.6 pct
*Banks and miners the standout losers
*British Energy up after broker price target hike
*Carphone down on BT's $3 bln broadband expansion
By Dominic Lau
LONDON, July 15 (Reuters) - Britain's top share index fell
2.6 percent by midday on Tuesday, led by banks as investors
fretted about problems at financial institutions despite
Washington's plan to stabilise two leading mortgage providers.
By 1044 GMT, the FTSE 100 <> was down 136 points, or at
5,164.4 after gaining 0.7 percent on Monday. The UK benchmark
index has fallen nearly 20 percent so far this year.
"The problems they (Fannie Mae and Freddie Mac) face still
highlight issues which are fundamental to the market," said Henk
Potts, equity strategist at Barclays Stockbrokers.
"The reality is everyday investors are looking at ...
runaway inflation, falling house prices, weak business and
consumer confidence surveys and that continue to sap away
investors' confidence."
Soaring food and fuel prices pushed Britain's inflation rate
to nearly double the central bank's 2 percent target in June,
boosting talk of interest rate hikes ahead. []
European shares were also down sharply by mid-session.
Banks were the biggest losing sector on the FTSE 100, with
Barclays <BARC.L>, Royal Bank of Scotland <RBS.L>, HSBC
<HSBA.L>, HBOS <HBOS.L>, Lloyds TSB <LLOY.L> and Standard
Chartered <STAN.L> down between 4.2 and 8 percent.
Mid-cap Alliance & Leicester <ALLL.L> dropped 6.3 percent
after soaring more than 50 percent on Monday after Spain's
Santander <SAN.MC> said it had reached a deal to buy the UK
mortgage lender.
U.S. stocks fell overnight as worry about the health of the
U.S. banking sector after Friday's collapse of IndyMac
outweighed earlier optimism over the government's plan to
stabilise Fannie Mae <FNM.N> and Freddie Mac <FRE.N>. In Asia,
Japan's Nikkei average <> lost 2 percent.
Kazakhmys <KAZ.L> dropped 2.4 percent. The copper producer,
which said on Monday it was holding merger talks with an unnamed
firm, denied speculation the deal might involve a reverse
takeover.
Miners were also standout losers as metal prices eased. BHP
Billiton <BLT.L>, Rio Tinto <RIO.L>, Anglo American <AAL.L>,
Xstrata <XTA.L>, Vedanta Resources <VED.L>, Eurasian Natural
Resources <ENRC.L>, Antofagasta <ANTO.L> and Lonmin <LMI.L>
slipped 1.7 to 5.7 percent.
BT Group <BT.L> lost 4.4 percent after the telecom group
said it plans to invest 1.5 billion pounds ($3 billion) to roll
out super-fast broadband to up to 10 million UK homes by 2012
and would suspend its share buyback programme from July 31.
Carphone Warehouse <CPW.L> shed 7.7 percent and BSkyB
<BSY.L> slipped 3.4 percent after the BT announcement.
Also, a survey showed British retail sales values fell last
month after May's sun-driven boost as consumers cut back on most
items except groceries. []
Investors will keep an eye on U.S. retail sales and producer
prices data at 1230 GMT and Federal Reserve Chairman Ben
Bernanke's testimony to the Senate Banking Committee later in
the day for more clarity on the strength of the U.S. economy.
POWER UP
British Energy <BGY.L> rose 1.5 percent to top the FTSE 100
gainers, after Morgan Stanley lift its price target on the stock
and proposed investors to go long of the nuclear power operator
and short of Drax <DRX.L>.
UK housebuilders sank after a survey showed British house
price falls eased slightly in June but market conditions
remained bleak with sentiment near record lows. []
Redrow <RDW.L>, Persimmon <PSN.L>, Bovis Homes <BVS.L>,
Barratt Developments <BDEV.L> and Bellway <BWY.L> shed between
2.6 and 5.9 percent.
"While the demand for housing has all but dried up,
inventory has not yet built up significantly," Lehman Brothers
said in a note.
"However, with mortgage supply reduced, credit conditions
tighter and unemployment very likely to rise as the economy
slows, the level of forced selling could rise, adding further
downward pressure to house prices."
(Additional reporting by Atul Prakash; Editing by Quentin
Bryar)
