FTSE down 0.4 percent ahead of rate decisions

* Risk aversion hits shares ahead of key rate decisions

* Losses trimmed after output data better than forecast

* Banks and commodity stocks fall

* Defensive telcos, food retailers advance

By Harpreet Bhal

LONDON, Nov 5 (Reuters) - Risk aversion ahead of key central bank policy decisions put pressure on Britain's leading shares around midsession on Thursday, with weakness in banks and miners offsetting modest gains in defensive telecoms and tobacco firms.

By 1109 GMT, the FTSE 100 .FTSE was down 0.4 percent, or 22.25 points at 5,085.64, with investors staying on the sidelines ahead of a decision by the Bank of England on interest rates and quantitative easing at 1200 GMT.

Miners were the biggest sector drag as metals prices retreated across the board on the back of a strenghtening dollar. Vedanta Resources (VED.L), Xstrata (XTA.L), BHP Billiton (BLT.L), Rio Tinto (RIO.L) and Kazakhmys (KAZ.L) fell 1.7 to 4.1 percent.

Early falls on the FTSE mirrored weakness on Wall Street overnight as a rally in U.S. stocks lost steam after the Federal Reserve said it would keep rates near zero for an "extended period" and predicted a sluggish recovery. [ID:nN04453484]

Analysts polled by Reuters expect the BoE to keep UK interest rates on hold while two thirds of economists forecast an increase of 25 billion pounds to the quantitative easing programme bringing the total to 200 billion pounds.

"We're talking about nerves here ahead of what will be the single most important statement from the BoE for the last three months... and the likelihood that quantitative easing is notched up by another 25 billion pounds or more," said Howard Wheeldon, strategist at BGC Partners.

The European Central Bank also delivers its rate verdict on Thursday, at 1245 GMT, with economists expecting the ECB to hold euro zone rates steady and make no changes to its special lending measures.

Banks were also weak with Barclays (BARC.L), HSBC (HSBA.L), Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) and Standard Chartered (STAN.L) shedding 0.8 to 2.9 percent, while the shake-up in the sector from earlier in the week also weighed on sentiment.

Energy stocks were under pressure, as crude CLc1 fell towards $79 a barrel. BG Group (BG.L), BP (BP.L), Royal Dutch Shell (RDSa.L) and Tullow Oil (TLW.L) declined 0.4 to 0.7 percent.

Cable & Wireless (CW.L) saw the sharpest drop on the index, 7.1 percent lower, after the telecoms group revised down its full-year earnings guidance. [ID:nL2333197]

Invensys (ISYS.L) dropped 6.2 percent as weakness in orders at its operations management division overshadowed a reiteration that its full-year performance will beat last year's. [ID:nL5204382]

DATA LIFTS SENTIMENT

Earlier in the session, optimism about the British economic outlook was lifted by data showing manufacturing output rose faster than expected in September, rebounding from August's sharp drop. [ID:nONS004571] This led shares to trim losses.

Among the select risers were defensive plays, which benefited from their perceived safe-bet characteristics.

Within the food retailer sector, Tesco (TSCO.L), J Sainsbury (SBRY.L), and WM Morrison (MRW.L) rose 0.1 to 1.9 percent.

Marks & Spencer (MKS.L) added 0.7 percent as Deutsche Bank upgraded its rating on the retailer to "buy", and Nomura and UBS lifted their price targets for the firm after it posted forecast-beating figures the previous session.

Vodafone (VOD.L) rose 1.5 percent helped by results from Deutsche Telekom (DTEGn.DE) which showed good growth from its mobile business.

Tobacco firms British American Tobacco (BATS.L) and Imperial Tobacco (IMT.L) added 0.9 and 0.5 percent respectively. (Editing by David Cowell)