FTSE drops to six-year low as fear grips market

                                
 * FTSE down 1.6 percent
                                
 * Energy, mining stocks slide on gloomy demand outlook 
                                
 * Banks fall broadly; Stanchart gains
                                
 * Heavyweight pharmas rally
                                
 
                                
 By Simon Falush
                                
 LONDON, March 3 (Reuters) - Britain's top share index was
down 1.6 percent by midday on Tuesday, plumbing a fresh six-year
low as anxiety about the outlook for the ailing financial sector
and broader economy intensified, leading investors to dump
equities.
                                
 By 1152 GMT, the FTSE 100 <.FTSE> had fallen 59.20 points to
3,566.63, after tumbling 5.3 percent the previous day. The index
is down 19.6 percent this year after tumbling more than 31
percent in 2008, its worst year since the index was launched in
1984.
                                
 The blue-chip index tumbled by more than 5 percent the
previous session as a deep-discount rights issue and a huge
quarterly loss from AIG spooked investors, already nervous about
an ailing financial sector.
                                
  "The prevailing uncertainty surrounding the financial
sector, including the banks and life insurers, remains a concern
which is exacerbated by the likes of the HSBC news yesterday and
the AIG loss. Against that backdrop it's difficult see a
sustained rally in the short term," said Tim Whitehead, a
stockbroker at Redmayne-Bentley.
                                
 After an early rally, fear once again gripped the market,
and prices fell as investors sought safety in cash and gold.
                                
 Energy stocks took the most points from the index as gloom
on prospects for oil tarnished the sector.
                                
 BP <BP.L>, Royal Dutch Shell <RDSa.L>, BG Group <BG.L> and
Tullow Oil <TLW.L> fell between 1.8 percent and 3.9 percent.
                                
 Miners were also broadly weaker despite a slight recovery in
metals stocks. 
                                
Xstrata <XTA.L> fell 7.7 percent with the stock trading
ex-rights, while Rio Tinto <RIO.L> fell 4.3 percent and
Antofagasta <ANTO.L> lost 4.1 percent.
                                
 Banks were also deeply in the red once again as jitters on
the sector returned wiping away early gains, after Standard
Chartered <STAN.L> announced its 2008 profits before tax were up
19 percent at $4.8 billion. Standard Chartered gained 1.5
percent.
                                
 Barclays <BARC.L> slid 5.9 percent with Nomura highlighting
a short position on concerns about how the bank will fund
joining the UK's asset purchase scheme, while Lloyds <LLOY.L>
fell 5.7 percent and Royal Bank of Scotland <RBS.L> lost 5.8
percent.
                                
 The FTSE 350 banking index <.FTNMX8350> was down 2.4
percent. It has tumbled 43 percent this year after having
slumped by almost 57 percent in 2008.
                                
 Adding to the gloom, data emphasised the bleak outlook for
the economy. Activity in Britain's construction sector shrank at
a record pace in February, a purchasing managers' survey showed.
[ID:nL3660042] 
                                
 "The data releases have done damage. If you look for a
reason for a turnaround this is probably it," said Robin Evans,
global strategist at Fox-Pitt, Kelton.
                                
 Heavyweight pharmaceuticals stocks Astrazeneca <AZN.L> and
GlaxoSmithKline <GSK.L> were both up 1.8 percent as investors
sought safety in defensive stocks.
                                
Insurers managed to eke out gains, with Admiral <ADML.L>
adding 2.2 percent after it reported an 11 percent increase in
2008 profits and Amlin <AML.L> gaining 3.4 percent to top the
list of large-cap winners after Citigroup raised its price
target.
                                
 Finance minister Alistair Darling told the Daily Telegraph
that the Bank of England could start to buy assets this week
with newly created money to boost both the money supply and the
economy. [ID:nN02409990]
                                
 Britain is also due to unveil a financial support package to
kickstart infrastructure projects that have been put on hold
because of the credit crunch, sources familiar with the
situation told Reuters. [ID:nL2868947]
                                
 Wolseley <WOS.L> fell 5.3 percent after the Financial Times
said the building supplies group was planning to launch a 1
billion-pound rights issue that could come as soon as the end of
next week.
                                
U.S. Federal Reserve Chairman Ben Bernanke is due to testify
on the economic outlook and the budget situation before the
Senate Budget Committee at 1500 GMT.
 (Additional reporting by Martina Fuchs; editing by Karen
Foster)