FTSE slips 2.8 pct as S&P deepens gloom

By Simon Falush

LONDON (Reuters) - A cut in the UK's ratings outlook from agency Standard & Poor's weighed on the top share index, with weakness in heavyweight oils, miners and banks contributing to a 2.8 percent slide by close on Thursday.

The FTSE 100 index ended 122.94 points lower at 4,345.47, its biggest daily fall since March 27, having closed 13.84 points lower on Wednesday.

The index is down 2 percent so far this year but has gained 25.6 percent since hitting a six-year trough on March 9.

S&P revised down its ratings outlook for the UK to negative from stable, prompting already weak UK stocks to fall further and the pound to slip sharply against the dollar, though it has since recovered.

"The potential downgrade (from S&P) has given an excuse for investors to sell after the recent sharp gains," said Grahame Exton, fund manager at Tilney Investment Management.

"Investors are realising it won't be the V-shaped recovery that they were pricing in."

The extent of the economic gloom for the UK's finances was reinforced by data showing public borrowing hit a record high for an April since records began in 1984.

Banks weighed heaviest on the blue chip index, with HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Barclays (BARC.L), Standard Chartered (STAN.L), and Lloyds Banking Group (LLOY.L) shedding 3.1 to 5.9 percent.

The S&P announcement and borrowing data took the shine off numbers from the Office of National Statistics which showed Retail sales rose at nearly double the rate expected by analysts in April, gaining 0.9 percent month-on-month.

Further weakness in the U.S. job market and anaemic Fed regional survey also dented sentiment and led to further selling in afternoon trade.

Oil majors fell back as crude weakened, with Royal Dutch Shell (RDSa.L), BP (BP.L), BG Group (BG.L) and Cairn Energy (CNE.L) down between 1.8 and 2.9 percent.

Miners retreated with lower metal prices, led by Kazakhmys (KAZ.L) and Eurasian Natural Resources (ENRC.L) down 6.6 and 7.4 percent respectively, while BHP Billiton (BLT.L), Xstrata (XTA.L), and Rio Tinto (RIO.L) fell 5 to 9.6 percent.

CABLE & WIRELESS TUMBLES

Cable & Wireless (CW.L) was down 9.6 percent as a disappointing outlook with its full-year results and the sale of shares by directors weighed.

The telecoms group posted full-year earnings up 36 percent on Thursday following an operating overhaul and acquisition synergies, and some analysts said the forecast growth for 2010 was weaker than hoped.