FTSE dented by Greek fears ahead of Fed

* FTSE 100 down 0.7 pct

* Commods, banks lead market lower

* Imperial Tobacco gains as update reassures

* Two-day Fed meeting ends 1815 GMT, stimulus steps seen

By Tricia Wright

LONDON, Sept 21 (Reuters) - Britain's top share index slipped back on Wednesday, weighed down by concerns over Greece's ability to stave off a default, as investors focused on the possibility of further economic stimulus from the U.S. Federal Reserve.

Banks , which notched up solid gains on Tuesday as bargain-hunters waded in, put in a mixed showing, with heavyweight HSBC off 1.1 percent, while Lloyds Banking Group was the FTSE 100's top riser, up 3 percent.

Miners came under pressure as euro zone debt concerns triggered fears over slowing metals demand, with Xstrata among the worst off, 1.6 percent weaker.

Gold miners bucked the trend, with Randgold Resources and midcap African Barrick Gold both up 1.3 percent on support from investors searching for safe havens.

Traders pointed to nerves surrounding Greece's next tranche of financial aid after talks with the European Union, European Central Bank and International Monetary Fund.

Statements from the Greek government are expected after a cabinet meeting starting at 0830 GMT, in which Finance Minister Evangelos Venizelos will present proposals on bringing forward painful austerity measures to appease EU/IMF inspectors.

"The Troika were saying that progress was good, but I think people were expecting them to say, okay we're ticking the box (for) the next payment and we're satisfied with the measures that have been taken," Martin Dobson, head of trading at Westhouse Securities, said.

"But I think Greece has got to come back to the table with more clarification, so I think that's why the markets are on a downward trend."

Investors bet the U.S. central bank, which concludes a two-day policy meeting later in the day, will act to push down already low long-term interest rates by tilting its portfolio towards longer maturities in a move known as 'Operation Twist', rather than announce more quantitative easing (QE3).

Traders, however, pointed out that Operation Twist has largely been priced in, meaning upside is likely to be limited should it be announced.

"A necessary part of the solution to a liquidity squeeze is more liquidity -- either by lower rates, improved confidence bringing out hoarded cash or central bank QE operations," Andrew Bell, chief executive of the 1.1 billion pound Witan Investment Trust, said.

"The Fed and other central banks should be using this toolkit to the full."

The FTSE 100 was down 35.27 points, or 0.7 percent, at 5,328.44 by 0836 GMT, showing little reaction to minutes from the Bank of England's September policy meeting and UK August public sector finance figures.

The index rose 2.0 percent on Tuesday.

An in-line trading update helped push Imperial Tobacco to near the top of the blue-chip leader board, up 1.1 percent, with Investec Securities repeating its "buy" rating on the cigarette manufacturer.

"We view Imperial's Q4 update as positive and reassuring relative to expectations. Revenue and volume performance has improved in Q4 against toughening comps," Investec said.

The broker pointed out that Imperial has confirmed the "de facto end of the Spain price war," although Investec does not anticipate any benefit from this to its full-year 2011 numbers.

Inmarsat weighed on the downside, shedding 3.3 percent, with traders citing the impact of two broker downgrades in ratings for the British satellites operator, partly on valuation grounds, and partly due to concerns over progress at its U.S. partner LightSquared.

Ex-dividend factors clipped 1.5 points off the FTSE 100 index on Wednesday, with Aggreko , Aviva , International Power and Petrofac all trading without their dividend attractions. (Additional reporting by Jon Hopkins; Editing by Jon Loades-Carter)

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