Banks lead broad sell-off, FTSE below 5000

                                
 * FTSE down 2.2 percent
                                
 * Financials lead retreat
                                
 * Bailed-out RBS, Lloyds diverge on government plans
                                
 * Commodities fall on demand fears
                                
 
                                
 By David Brett
                                
 LONDON, Nov 3 (Reuters) - Britain's leading share index
dropped 2.2 percent in mid-session trade on Tuesday, with
negative newsflow on the UK and global financial sector denting
banks and contributing to a broad-based retreat in equities.
                                
 At 1142 GMT, the FTSE 100 <.FTSE> index was 111.56 points
lower at 4,992.94, slipping below the 5,000 level for the first
time since Oct. 2 having gained 1.2 percent on Monday.
                                
 Banks were hit hardest as Lloyds Banking Group <LLOY.L>
launched a record 13.5 billion pound ($22 billion) rights issue
and along with rival Royal Bank of Scotland (RBS) <RBS.L> agreed
to sell off some businesses to limit their reliance on
government support.
                                
 The British Treasury said Lloyds and RBS would between them
have to sell off businesses equating to 10 percent of the UK
retail banking market. [ID:nL3540088]
                                
 Lloyds pared early gains but was still an outperformer as
investors digested the confirmation of long-expected plans.
                                
 RBS shares shed 6.6 percent, reflecting weakness in the
wider banking sector, which reeled after a bankruptcy move by
U.S. lender CIT and following comments from a Federal Reserve
official warning about loan losses. [ID:nN02443852]
                                
 Swiss peer UBS <UBSN.VX> also added to the malaise after
posting disappointing results.
                                
 HSBC <HSBA.L>, Standard Chartered <STAN.L> and Barclays
<BARC.L> lost 3 to 4.3 percent.
                                
 Stephen Pope, chief global market strategist at Cantor
Fitzgerald said the news, although not all bad, had weighed on
sentiment, leaving a murkier picture of UK recovery hopes.
                                
 "Is this just the opening salvo?," said Pope. "There are
great doubts about the UK recovery".
                                
 "We've just gone through the 10-week moving average and
unless we get back up to the 5,100 level in a short space of
time we could see the start of some side tracking," he said.
                                
 The uncertainty saw commodities impacted as demand concerns
weighed on both metal and oil prices, which were hit by a rising
dollar.
                                
 Heavyweight miners fell back, with Fresnillo <FRES.L>, BHP
Billiton <BLT.L>, Xstrata <XTA.L> and Vedanta Resources <VED.L>
shedding 3.7 to 5.4 percent.
                                
 
                                
 ENERGY DRAIN
                                
 Energy stocks also sagged with BP <BP.L>, BG Group <BG.L>,
Royal Dutch Shell <RDSA.L>, Tullow Oil <TLW.L> and Cairn Energy
<CNE.L> down 0.5 to 3.4 percent.
                                
 In individual issues, Hammerson <HMSO.L> was down 2 percent
after the firm said it is concerned about property debt levels,
while broker Collins Stewart's view on a challenging market also
weighed on the stock.
                                
 Engine-maker Rolls Royce <RR.L> fell 2.4 percent after the
company's interim trading update disappointed investors, with
Evolution Securities repeating its "sell" rating on the stock.
[ID:nL3072835]
 (Editing by Jon Loades-Carter)