* FTSE 100 down 2 pct
* Banks weak as sterling hits 12 year low
* Consumer issues hit by news from Punch Taverns, DSG
By Jon Hopkins
LONDON, Sept 3 (Reuters) - Britain's blue-chip share index
shed over 2 percent by midday on Wednesday with banks knocked as
sterling touched 12 year lows and consumer stocks hit by
disappointing news in the pubs and retail sectors.
At 1150 GMT, the FTSE 100 <> was down 121.3 points, or
2.1 percent, at 5,499.4.
UK banks accounted for over 25 negative index points,
affected by worries about the health of the global economy, the
UK housing market and further writedowns.
HBOS <HBOS.L>, Lloyds TSB <LLOY.L> and Standard Chartered
<STAN.L> lost 2.1-3.5 percent, while Barclays <BARC.L> shed 4.1
percent after broker RBS cut its rating on the stock to "sell"
from "hold".
"Banks are doing the most damage to the FTSE 100, seemingly
due to the lukewarm response to Gordon Brown's plans to boost
the housing market, said Nathan Miller, a trader at CMC Markets.
"The increase in the stamp duty threshold and allocation of
1 billion pounds of interest free loans to first time buyers are
not expected to be able to counter the freefalling house prices
and reduced demand for new homes," Miller added.
HSBC <HSBA.L> shed 1.75 percent. South Korea's Choson Ilbo
newspaper said both HSBC and an unidentified Chinese bank were
among potential buyers of Lehman Brothers <LEH.N>, citing a
financial industry source. []
Adding to the overall negative sentiment on the British
economy, sterling's <=GBP> slide continued as it hit a 12 year
low against a basket of currencies.
In other financials, Schroders <SDR.L> slipped 3.6 percent
after Morgan Stanley cut its rating on the stock to
"underweight" from "equal weight" and reduced its price target
to 970 pence from 975 pence.
Insurer Friends Provident <FP.L> dropped 4 percent after
Panmure Gordon cut its rating to "hold" from "buy" as the stock
has hit its 102 pence target price and in the absence of any
real sense of recovery in investment markets.
Broker comment also hit heavyweight mobile phone company
Vodafone <VOD.L>, off 3 percent after Credit Suisse cut its
rating to "neutral" from "outperform" and its price target to
160 pence from 180 pence.
Wolseley <WOS.L> lost 3.5 percent after Deutsche Bank cut
its rating on the stock to "hold" from "buy".
A limited number of blue chip stocks traded in positive
territory, with oil major BP <BP.L> standing out, up 1 percent
after Goldman Sachs upped its rating to "buy" from "neutral" in
a review of European energy stocks.
Goldman said the pullback in crude prices created an
attractive entry point for the sector.
Other heavyweight oil issues fell as crude fell below $109 a
barrel weighed down by slowing demand in the United States and
signs the U.S. oil sector would recover quickly from Hurricane
Gustav.
CONSUMER ISSUES HIT BY TRADING NEWS
Pubs suffered after Britain's biggest operator, mid-cap
Punch Taverns <PUB.L>, lost 13.2 percent after it reported a
decline in sales for its latest financial year and said it would
not be paying a final dividend.
Peer Enterprise Inns <ETI.L> topped FTSE 100 decliners, down
12 percent, while Whitbread <WTB.L> lost 6 percent, with
mid-caps JD Wetherspoon <JDW.L> and Mitchells & Butlers <MAB.L>
both off 7 percent.
In the retail arena, DSG International <DSGI.L> lost 4.7
percent after the European electrical goods retailer said it
remained "very cautious" about the outlook for the European
consumer and posted a drop in first-quarter underlying sales,
pledging to cut more costs. []
Among other weak retailers, Next <NXT.L> lost 4.8 percent,
Marks & Spencer <MKS.L> shed 3.5 percent, and Sainsbury <SBRY.L>
fell 4.7 percent, unsettled by press reports the latter is one
of the potential bidders for Irish supermarket group Superquinn.
"The environment for consumer stocks continues to get
worse," said a trader, "with little sign the Bank of England is
going to do anything tomorrow to help."
"Wall Street looks to be back under pressure today, with the
Fed beige book the main focus, aside from hurricane watch and
the Republican convention, so the market will remain gloomy,"
the trader added.
(Editing by Quentin Bryar)
