FTSE ends touch lower; banks offsets Tesco gains

* Financials down as bad loans worries weigh

* Tesco rises after reassuring results

By Dominic Lau

LONDON, April 21 (Reuters) - Britain's FTSE 100 .FTSE drifted lower on Tuesday, as financials fell on concerns over bank sector loan quality but Tesco's (TSCO.L) reassuring results boosted retailers, limiting the index's losses.

The UK index closed down 3.4 points, 0.1 percent at 3,987.46, after trading as low as 3,897.25 earlier in the session. The benchmark lost 2.5 percent on Monday and is down 10 percent this year, after sliding more than 31 percent in 2008.

Volumes on the FTSE 100 were about 15 percent higher than the index's 90-day average daily volume.

Banks took the most points off the UK index. Royal Bank of Scotland (RBS.L), Barclays (BARC.L), HSBC HSBC.L and Lloyds Banking Group (LLOY.L) sagged between 1.9 percent and 9.1 percent.

The International Monetary Fund said global writedowns of toxic debt among banks and other financial institutions in the United States, Europe and Japan could reach $4.1 trillion. [ID:nN21456999]

"If you look at history, bear market bounces last 30 trading days and tomorrow will be the 30th trading day since this little rally commenced from the lows back in March," said Angus Campbell, head of sales at Capital Spreads. "There is a little bit of nervousness regarding that."

"There is a little bit of concern that some of these banks aren't doing as well as their rivals at the commencement of the earnings season ... It's only natural we should see a little bit of profit-taking," Campbell said.

In the United States, Bank of New York Mellon (BK.N) said first-quarter profit fell by more than a half and it slashed its dividend.

Campbell said he expected there would be "lots of debt, no tax cut and lots of spending" in British Finance Minister Alistair Darling's budget on Wednesday.

Darling is set to spend an extra 1 billion pounds to support the construction industry in the budget, a government source said. [ID:nLL109369]

Britain's annual consumer price inflation eased to a one-year low in March, while retail price inflation turned negative for the first time in nearly 50 years.

Insurers were also under pressure, with Aviva (AV.L), Legal & General (LGEN.L), Old Mutual (OML.L), Prudential (PRU.L) and Standard Life (SL.L) falling between 3.9 percent and 7.5 percent.

Prudential suffered after Morgan Stanley cut its rating to "underweight" from "equal-weight" amid concerns about its U.S. operations.

TESCO SHINES

Tesco rose 4.9 percent after the UK's biggest retailer beat forecasts with a 10 percent rise in annual profit to 3.13 billion pounds and said its underlying British sales growth accelerated in the first few weeks of its new financial year.

Also in the retail sector, Sainsbury (SBRY.L) put on 1.6 percent, Morrison Supermarkets (MRW.L) added 0.6 percent and Home Retail (HOME.L) was up 2 percent.

Associated British Foods (ABF.L) was another standout riser, up 4.9 perecnt after it beat forecasts with a 2 percent dip in first-half profit as growth at its discount fashion chain Primark and in sugar sales offset tough trading in other areas.

Oil producers strengthened, with BP (BP.L), Royal Dutch Shell (RDSa.L), BG Group (BG.L) and Tullow Oil (TLW.L) up between 0.1 percent and 0.8 percent.

Miners were also firmer in general. Eurasian Natural Resources (ENRC.L), Rio Tinto (RIO.L), Anglo American (AAL.L), Fresnillo (FRES.L) and Lonmin (LMI.L) up between 0.3 percent and 8.3 percent.

AstraZeneca (AZN.L) slipped 1 percent following a downgrade by Bank of America-Merrill Lynch to "underperform" from "neutral" in a cautious sector review. (Editing by Karen Foster)