* FTSE 100 falls 1.1 pct
* Fears of Fannie Mae, Freddie Mac bailout hit financials
* Bid speculation on Zimmer Holdings lifts Smith & Nephew
By Dominic Lau
LONDON, Aug 19 (Reuters) - Britain's leading share index
fell for the third session in a row by midday on Tuesday to
stand down 1.1 percent as fears of fresh credit losses weighed
on banks.
By 1029 GMT, the FTSE 100 <> was down 59.3 points at
5,390.6. The UK benchmark is down 16.5 percent for the year.
Wall Street tumbled overnight and shares of Fannie Mae
<FNM.N> and Freddie Mac <FRE.N> fell to their lowest in nearly
20 years after Barron's said the government may have no choice
but to nationalise the two housing finance groups. This could
wipe out existing holders of the two companies' common stock and
result in losses for other asset holders.
Former IMF chief economist Kenneth Rogoff said the worst of
the global financial crisis is yet to come and a large U.S. bank
would fail in the next few months as the world's biggest economy
hits further troubles. []
"A lot of people have thought over the course of last few
weeks that much of the bad news regarding markets is out in the
public domain. That clearly is not the case," said Peter Dixon,
UK economist at Commerzbank.
"We saw the comments from Rogoff, suggesting that a major
U.S. bank could well go under. That just reawakens investors to
the idea that we are by no means over the worst of the crisis."
Banks shaved nearly 37 points off 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 3.4 to 5.4 percent.
Insurers were hurt by the knock-on effect, with Standard
Life <SL.L>, Old Mutual <OML.L>, Prudential <PRU.L>, Aviva
<AV.L> and Friends Provident <FP.L> losing between 1.9 and 4.2
percent.
"The widening in U.S. Libor ... is very significant because
it suggests that banks are under pressure to finance debt that
they have to repay by the end of the year," said Jeremy
Batstone-Carr, head of private client research at Charles
Stanley.
"Certainly, judging by the data that I have seen, the
numbers are enormous, which is going to leave the banks very
constrained. The credit crisis is going to keep on claiming
victims throughout the remainder of the year."
The spread of London interbank offered rates over overnight
index swap rates widened on Monday. The spread expresses the
premium paid for borrowing over anticipated central bank rates,
and a wider spread is seen as an indication of a decreased
inclination to lend.
Batstone-Carr said central banks should give up their fight
against inflation and focus on shoring up growth and tackling
the crisis in the financial sector.
Bid speculation on U.S. orthopaedic device maker Zimmer
Holdings <ZMH.N> lifted Smith & Nephew <SN.L> 3.2 percent to top
the FTSE 100 gainers, traders said.
Gas producer BG Group <BG.L> strengthened 1.7 percent as
Australia's Origin Energy <ORG.AX> reiterated that its
shareholders should reject the British firm's $11.9 billion
hostile takeover bid.
Vodafone <VOD.L> shed 1.1 percent after the Financial Times
said the mobile phone giant is to increase its minimum British
call charges from September by at least 25 percent and by as
much as 50 percent for some customers.
(Editing by Paul Bolding)
