* FTSE 100 down 0.6 percent
* Energy weak; China worries hit demand outlook * Banks sag; Spain's BBVA reports rising bad loan ratio
* FOMC meeting eyed
By Simon Falush
LONDON, Jan 27 (Reuters) - Britain's top share index dropped 0.6 percent midday on Wednesday as banks retreated and miners and energy stocks fell on lower commodity prices while investors waited for the end of a U.S. Federal Reserve policy meeting.
By 1207 GMT, the FTSE 100 <
> was down 30.35 points at 5,244.88, but had recovered slightly after touching its lowest level since Dec. 21. The index gained 0.3 percent the previous session, snapping a four-session losing streak.Energy stocks were the biggest drag on the index, slipping as the outlook for demand for crude <CLc1> was clouded by China's heightened efforts to rein in soaring credit growth, a factor which helped push Asian stocks lower for a ninth day.
BG Group <BG.L>, BP <BP.L> and Royal Dutch Shell <RDSa.L> fell 0.6 to 1 percent. But Tullow Oil <TLW.L> was the standout loser, down 4.6 percent after it launched a $1.6 billion share sale to pay for the development of assets in Uganda.
"There are China tightening worries, there are worries about banks' capital and the GDP number shows that the UK economy could slip back into recession, are all weighing" said Nick Batsford, broker at Pretium Securities.
Data on Tuesday showed that Britain crept out of recession but with a far weaker growth rate than expected.
Also highlighting the stiff headwinds buffeting the British economy, data from the Confederation of British Industry showed retail sales volume falling unexpectedly this month, at their sharpest annual rate in five months. [
]China's largest bank ICBC said on Wednesday it has stopped rolling over some loans after a surge in credit at the start of the year, in the latest evidence that banks may finally be heeding a government-directed clampdown.
There were nerves ahead of the conclusion of the latest two-day Federal Reserve Open Market Committee meeting, although a decision on U.S. interest rates and the central bank's quantitative easing policy is not due until after the London close, at 1915 GMT. [
]Banks, sensitive to shifts in investor sentiment, were also pressured after Spain's second-largest bank BBVA <BBVA.MC> reported a rise in bad loans.
Barclays <BARC.L>, HSBC <HSBA.L> and Royal Bank of Scotland <RBS.L> fell 1.2 to 3.5 percent. But Standard Chartered <STAN.L>, and Lloyds Banking Group <LLOY.L> gained slightly.
Hedge fund manager Man Group <EMG.L> was also a big blue-chip faller, down 3.1 percent, after its flagship AHL Diversified fund posted a 3.6 percent fall over the past week and Credit Suisse cut its price target and estimates.
Heavyweight mobile phone operator Vodafone <VOD.L>, seen as having sound defensive qualities, was a support to the index, up 0.7 percent. Other defensive stocks also gained with Imperial Tobacco <IMT.L> up 0.5 percent and SABMiller <SAB.L> rising 1.2 percent.
Ahead of the FOMC decision, a batch of U.S. economic indicators should attract interest, with the latest weekly mortgage and refinancing indexes due for release at 1330 GMT, followed by December new home sales at 1500 GMT.
Caterer Compass Group <CPG.L> fell after going ex-dividend.
(Editing by Erica Billingham)