Weak commods drag FTSE

By Simon Falush

LONDON (Reuters) - Weaker crude and metal prices sent energy stocks and miners sliding, dragging the top share index down 1 percent to its lowest close in more than two months Monday.

The FTSE 100 index ended down 41.37 points at 4,194.91, its weakest close since April 29, though strength in defensive stocks prevented a sharper decline.

Miners, hit by softer metal prices, were the main drag on the index.

Lonmin was the heaviest top-flight faller, down 8.5 percent, while Xstrata, Kazakhmys Anglo American and BHP Billiton shed 5 to 7.5 percent.

Rio Tinto shed 7 percent after it agreed to sell its Americas food-packaging assets for $1.2 billion (740 million pounds) to packaging group Bemis, raising more much-needed cash for the indebted miner.

The fall on London's blue-chip market mirrored weakness in Europe, Asia and on Wall Street as weak jobs data Thursday cast a long shadow over the investment outlook.

The FTSE 100 index has surged more than 21 percent since hitting a six-year trough in March, though it is still down 5.4 percent for the year.

"The payrolls data was a sign that expectations were running ahead of reality, and it was a catalyst for a return to negative sentiment, which has continued through to today," said Peter Dixon, economist at Commerzbank.

The U.S. non-farm payrolls showed that the world's biggest economy shed 467,000 jobs in June, 100,000 more than expected by economists.

DEMAND SLACKENS

Like miners, falling oil majors were a heavy burden on the blue-chip index Monday as demand for energy slackened, pushing the crude price to a five-week low below $64 a barrel, though it has since recovered slightly.

BG Group dropped 2 percent, while BP and Royal Dutch Shell fell 2.6 percent and 2.1 percent, respectively.

The sector was also hurt as HSBC cut its rating on Shell to "neutral" from "overweight" and cut its price target on BP and BG Group.

Banks also suffered from investor pessimism as investors looked to get out of stocks seen as sensitive to risk. Royal Bank of Scotland, Barclays, Standard Chartered, HSBC and Lloyds Banking Group retreated between 0.5 and 2.9 percent.

Defensive stocks were in demand, as investors piled into assets perceived as resilient to economic weakness.