FTSE ends down 1.7 percent; Dubai debt worries weigh

A worker walks past a screen displaying stock market movements at a window of the London Stock Exchange in the City of London October 27, 2008.

LONDON (Reuters) - Britain's top share index closed 1.7 percent lower on Tuesday on worries over British banks' exposure to Dubai debt and concerns ahead of Wednesday's UK pre-budget report that Royal Bank of Scotland's board might resign in a row over bonus payments.

The FTSE 100 index ended down 87.53 points at 5223.13, hitting a one-week low.

Banks were the biggest drag on concerns over their exposure to Dubai's debt, and worries about a possible windfall tax on banks being introduced by finance minister Alistair Darling in his pre-budget report on Wednesday.

Troubled Dubai property developer Nakheel made a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a report published on Tuesday.

HSBC, Barclays and Standard Chartered were down 2.5 to 3.7 percent.

Dealers said RBS's shares fell 7.7 percent on renewed worries its board could resign over a bonus dispute with the government. WestLB also downgraded the state-backed lender to "sell" from "reduce."

"The FTSE has continued to fail at its highs and investors may also be taking some money off the table ahead of the pre-budget report tomorrow," said Angus Campbell, head of sales at Capital Spreads.

The FTSE 100 index has gained about 51 percent from a six-year low hit in March, though it is still 3.6 percent below its level of mid-September 2008 before the collapse of Lehman Brothers.

Miners also weighed heavily as commodities slid across the board as investors switched out of cyclical issues.

Xstrata was among the hardest hit, down 3.5 percent after the firm said it was taking a $1.9 billion charge for restructuring its nickel business after metal prices fell, and was taking further charges of $545 million for copper smeltering operations in Canada and Chile.

Peers Eurasian Natural Resources, Lonmin, Rio Tinto and BHP Billiton shed 1.7 to 3.9 percent.

Energy stocks were under pressure, hurt by a 1.3 percent drop in the price of crude, with Royal Dutch Shell, BP and BG Group off 1.1 to 2 percent.

"It has been a grim start to the week with prospects for things turning around looking markedly slim," Campbell said.

TESCO WEIGHS

Tesco shares lost 2.3 percent after the world's third-biggest retailer posting lower-than-expected quarterly sales.

Other food retailers fell back on the news, with Sainsbury shedding 1.2 percent and Wm. Morrison Supermarkets losing 0.1 percent.

Retail sales values rose at their slowest annual pace last month since August, a British Retail Consortium survey showed, held back by food sales where a fall in inflation led to their weakest performance in more than two years,

Media-related shares provided some ray of light. Pearson was the top FTSE 100 riser, up 1.1 percent after U.S. peer McGraw-Hill said it expects a better year for all businesses in 2010. Shares in WPP, the world's largest advertising group, added 0.2 percent.

German industrial output unexpectedly fell in October, pointing to a slowdown in the economy's recovery in the final quarter of this year.

British industrial output also failed to grow in October, disappointing expectations for a further expansion and raising doubts over the strength of any recovery in the fourth quarter.

(Editing by Greg Mahlich)