Oils, miners dent FTSE by midday, banks support
* FTSE 100 down 0.7 pct
* Oil, mining stocks slide on demand outlook
* Banks up, RBS supported by insurance division bid
LONDON, Jan 12 (Reuters) - Britain's blue-chip stocks fell 0.7 percent by midday on Monday, dragged down by oil and mining shares as fears about a bleak economic outlook weighed on demand for energy and raw materials, but rising banks limited losses.
By 1141 GMT, the FTSE 100 .FTSE lost 30.91 points to 4,417.63, having slid 1.3 percent on Friday, contributing to a loss of 2.5 percent for the first trading week of 2009.
Oil CLc1 slid over 5 percent to below $39 a barrel on Monday weighed by persistent fears about a slowdown in energy demand after a big rise in U.S. unemployment was revealed by data released on Friday.
Oil stocks weighed most on the benchmark bourse with Royal Dutch Shell (RDSa.L), Cairn Energy (CNE.L), BP (BP.L), BG Group (BG.L) and Tullow Oil (TLW.L) all down between 0.1 percent and 2.3 percent.
"There's a little weakness in oils, and mining stocks are weaker," said Richard Hunter, head of UK equity research at Hargreaves Lansdown.
"It's the old demand story, we've seen a couple of spikes on hopes about the longer term demand outlook but any gains have been erased."
The world's top oil producer, Saudi Arabia, plans to cut output by up to 300,000 barrels per day (bpd) to prop up the oil price, industry sources said on Sunday. [ID:nLB708600].
Miners also contributed to losses in the midday session, with Antofagasta (ANTO.L), down 6.2 percent, the worst performing blue-chip mining stock after RBS downgraded the stock to "hold" from "buy".
"We still like their business model but believe the upcoming results season could prove more challenging than some in the market anticipate," the broker said in a note to clients.
Anglo American (AAL.L), Kazakhmys (KAZ.L), BHP Billiton (BLT.L), Eurasian (ENRC.L), Vedanta Resources (VED.L) and Rio Tinto (RIO.L) fell between 0.8 percent and 3.6 percent.
BANKING GAINS
Banking shares were the best performers, with Lloyds TSB (LLOY.L) up 5.8 percent, after Credit Suisse upgraded the bank to "neutral" from "underperform".
Lloyds shares were also lifted following confirmation that the British government is to take a 43.4 percent stake in the combined Lloyds TSB-HBOS bank while HBOS HBOS.L added 4.5 percent.
Royal Bank of Scotland (RBS.L) was the top performing bank, up 6 percent on a report that private equity firms Apollo Management and BC Partners have joined with former Norwich Union boss Patrick Snowball to mount a late bid for the bank's insurance division. [ID:nLB165423]
Banks, which lost more than 50 percent of their value in 2008 .FTNMX8350, were also helped by talk in the market that the UK government may step in to back loans in a bid to boost bank lending which has been severely curtailed by the credit crunch, analysts said.
Barclays (BARC.L), HSBC (HSBA.L) and Standard Chartered (STAN.L) gained between 0.9 percent and 3.1 percent.
In other news, Prime Minister Gordon Brown pledged to spend 500 million pounds to prevent the rising unemployment caused by the financial crisis from becoming a long-term problem.
With the economy sliding towards recession, Brown said he would set out a guarantee of intensive support to help people who have been unemployed for more than six months. [ID:nL9508583].
Shares in 3i Group (III.L) fell 6.3 percent after Morgan Stanley cut its stance on the private equity group to "equal weight" from "underweight" with a reduced price target of 350 pence from 710 pence, citing de-gearing risk.
Hedge fund outfit Man Group (EMG.L) was the heaviest loser, sliding 7.2 percent after Citi downgraded it to "sell" from "hold" ahead of an assets under management update due later in the week. (Additional reporting by Simon Falush; editing by Simon Jessop)
