* FTSE down 1.0 percent
* Banks fall as Greece sees deficit miss
* Miners wane on Asia PMI woes
By David Brett
LONDON, Oct 3 (Reuters) - Britain's top share index began the final quarter of 2011 on a downbeat note as investors trimmed positions in banks and miners on familiar concerns over Greece's debt problems and worries about growth in Asia.
A 2012 draft budget approved by Greece's cabinet on Sunday predicted a deficit of 8.5 percent of gross domestic product for 2011, missing its 7.6 percent target, even with more austerity measures.
"This suggests that Europe's debt problems have come to a head and that the potential for a Greek managed bankruptcy and major bondholder haircut in the 50 percent range appears increasingly likely," said Colin Cieszynski, market analyst at CMC Markets.
Twitchy equity investors, keen not to get caught out on the wrong side of a sell-off, trimmed positions in banking shares as concerns grew that the euro zone debt problems could lead to a fresh banking crisis.
Highlighting the impact the debt crisis is having on the banking sector, Moody's said it was reviewing the rating of Franco-Belgian bank Dexia on concerns about its liquidity position.
Banks led the blue chip fallers, with Royal Bank of Scotland down 4.4 percent, while the cost of insuring European government debt and European bank's debt increased to close to record levels.
"This is a clear sign that the markets know and understand how interlinked the banking system is - no bank is insulated from this crisis as a chain is only as strong as its weakest link," Louise Cooper, markets analyst at BGC Partners, said.
On Monday, euro zone finance ministers will discuss ways to leverage their EFSF bailout fund although traders said they would not be holding their breath for a swift resolution.
The FTSE 100 closed down 52.98 points, or 1 percent at 5,075.50, continuing the volatile trend seen in the previous quarter, when the index sank 14 percent on dual concerns over the euro zone debt crisis and the United States lapsing into another recession.
The risk-off trade was not confined to banks as miners fell too in tandem with metal prices.
Copper touched its lowest level since July 2010 as September factory activity in some of Asia's biggest economies slumped to levels last seen during the depths of the financial crisis as export demand dropped.
Even in China, which reported a slight uptick in its official PMI on Saturday, economists saw evidence of a cooling-down as the increase in factory activity was smaller than average.
Miner Vedanta Resources fell 8.3 percent, while Morgan Stanley cut its forecasts for the mining sector on the diminishing prospect of global growth being robust enough to deliver stronger base metals prices next year.
Luxury goods company Burberry shed 7 percent, extending its slide in the past four sessions to 18 percent, as investors continued to fret about the firm's exposure to China.
"The global economic slowdown has become increasingly apparent after the conspicuous lack of a Q3 bounce-back after the disappointing second quarter," said Lothar Mentel, chief investment officer at Octopus Investments, which manages nearly $4 billion.
He said Octopus has looked for more exposure in defensively-positioned equity funds, raising cash levels and taking advantage of shorter-term trading opportunities due to market volatility.
Perceived defensive stocks such as power provider International Power and utility Scottish and Southern Energy featured among the few risers, gaining 1.4 and 1.3 percent respectively.
Elsewhere on the upside, bullish broker comment helped lift Randgold Resources 3.7 percent, Sainsbury 2.3 percent and Vodafone 1.4 percent.
Surprisingly upbeat PMI data from the United States and the UK also helped London's blue chip index bounce off a session low of 4,983.28.
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