UPDATE 1-RESEARCH ALERT-Credit Suisse cuts B&B and HBOS

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Aug 14 (Reuters) - Credit Suisse downgraded its rating and cut its price target two UK banks, Bradford & Bingley BB.L and HBOS HBOS.L, saying turbulence in credit markets further compounded its negative stance on UK mortgage banks and that it would continue to avoid the sector.

Analyst Jonathan Pierce cut his rating on the British specialty lender Bradford & Bingley to "underperform" from "neutral" and price target to 390 pence from 435 pence.

For B&B, principal issues surround the dependency on wholesale money and, despite company reassurances, the reliance of margins on extended product duration, Pierce wrote in a research note.

The brokerage also downgraded HBOS to "neutral" from "outperform" saying its concerns mainly relate to the prospect of HBOS being called on to provide liquidity in the event that asset-backed commercial paper (ABCP) cannot be fully rolled over.

Credit Suisse reduced its price target to 1,080 pence from 1,280 pence on Britain's biggest mortgage lender. The brokerage did not think the stock was expensive but its forecasts were increasingly reliant on gains.

The brokerage added that it remained negative on Northern Rock NRK.L and saw a danger that the current environment leaves the bank unable to sell assets earmarked for disposal.

"We therefore think there is a chance Northern Rock will further downgrade full-year guidance at some point soon," Pierce wrote in a note dated Aug 13. (Reporting by Nivedita Gupta in Bangalore)