Mounting Middle East tensions fuel FTSE 100 retreat
* FTSE 100 down 0.8 percent at 6,440.97
* Western powers could attack Syria in days - sources
* Rising oil prices could hit airlines - Investec
* Financials down, RBS weighed on by call for break-up
* Petrofac rallies on bullish outlook
By David Brett
LONDON, Aug 27 (Reuters) - Financials and miners dragged Britain's FTSE 100 lower on Tuesday as tensions in Syria and prospects of stimulus withdrawal by the U.S. Federal Reserve crimped risk appetite.
Reopening after a public holiday, London's blue-chip shed 51.13 points, or 0.8 percent to 6,440.97, costing the index all the previous session's gains, albeit in low volumes.
Crisis in Syria was the most imminent concern for investors as the West told rebels fighting President Bashar al-Assad that it could hit the country within days.
"The markets are jittery as Russia and Iran issued strong warnings against any Western military action. The trouble in Syria, along with U.S. debt ceiling worries and tapering talk, have put stock markets firmly on the back foot," said Rikin Thakrar, senior dealer at Spreadco.
Middle East tensions have sent the price of oil spiralling higher, raising costs for companies and a potential drag on airline shares, according to broker Investec.
Currently around $111 a barrel, Investec said in a note that prices above $100 a barrel were a severe headwind to airlines' profitability and one of the reasons it cut its rating on British Airways owner IAG to "hold" from "buy" in a broader note on airlines. IAG fell 4.8 percent.
Against the background of preparations for possible outside military action in Syria, investors have been sent scurrying for safe-haven investments such as gold.
Precious metals miners such as Fresnillo and Randgold Resources rose as much as 7.1 percent as investors used the equities as a proxy for the yellow metal.
Concerns over the economic impact if the U.S. scales back stimulus as early as September remain the longer-term hurdle for the market to get over, with worries that it could stall the momentum of the current anaemic recovery.
The market, however, has begun pricing in a pull-back in stimulus in the United States. Government debt yields have risen across the board recently, while the FTSE 100 stalled after rallying 10 percent from mid-June lows.
Stewart Richardson, chief investment officer, at RMG Wealth, warned: "If equities begin to struggle (after short-term support was recently broken), then traders and investors may become more convinced that they switch some funds away from equities and perhaps back to bonds."
Financials - banks, insurers and asset managers - which are highly exposed to the fortunes of the broader economy, took 27 points off the FTSE 100.
State-backed Royal Bank of Scotland fell 4.1 percent, among the worst-hit of UK lenders in a broad European sector retreat, weighed down by a newspaper report that members of parliament raised pressure for the bank's break-up.
Riskier miners, already down 15.1 percent in 2013 on concerns over dwindling demand from the world's largest economies, took another 9.5 points off Britain's leading share index as Antofagasta announced first-half profit had dropped by nearly a third. Its shares fell 3.3 percent.
UK oil services firm Petrofac, however, jumped 8.5 percent in heavy volume after the company said it expects a stronger second-half performance, with analysts at Liberum saying the share was a "buying opportunity" on recent weakness.
Britain's Bunzl, distributor of goods such as carrier bags and hygiene products, rose 1.6 percent after delivering above-forecast first-half profits.
Bullish broker comment helped retailer Marks & Spencer rise 1.6 percent after Citigroup raised its recommendation on the company to "buy" from "neutral". (Reporting by David Brett; editing by Stephen Nisbet)