FTSE drops 7.2 pct as recession fears mount

* FTSE 100 drops 7.2 percent

* Commodity stocks slump on mounting recession fears

* Banks fall led by HSBC, StanChart (For more on the financial turmoil, click on [nCRISIS])

By Jon Hopkins

LONDON, Oct 15 (Reuters) - Britain's top share index lost 7.2 percent on Wednesday, ending a two-day rally, as commodity stocks slumped amid growing fears of global recession.

The FTSE 100 .FTSE ended down 314.6 points at 4,079.6, erasing a big chunk of the near 12 percent rebound seen in the previous two sessions after plummeting 21 percent last week, its second worst weekly fall on record.

"It's all or nothing with the FTSE at the moment, with yet another large one-day movement," said Tim Hughes, Head of Sales Trading at IG Index.

"The comedown after the euphoria of the multi-billion pound bail-outs earlier this week seemed inevitable, although a sharp rise in the latest UK unemployment figures hasn't helped matters," he added.

Miners were the biggest losers, as base metal prices fell and after Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) warned of slowing Chinese demand for commodities and signalled a possible delay in plans to sell $10 billion in assets.

Rio Tinto shares lost 16.6 percent, while Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz) dropped 25.2 percent, Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) shed 22.3 percent, Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz) slumped 20.1 percent, and Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) sank 19.6 percent.

Weaker oil prices weighed on heavyweight energy stocks, with BP (BP.L: Quote, Profile, Research, Stock Buzz), Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), BG Group (BG.L: Quote, Profile, Research, Stock Buzz) and Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) dropping between 6.8 and 12.2 percent as crude CLc1 shed another $3 a barrel.

Banks were also big fallers, with the FTSE 350 banks index .FTNMX8350 down 5.7 percent as heavyweights HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) lost 6.5 and 11.9 percent.

Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) ended down 0.7 percent having seen gains earlier on newspaper reports the government was considering a U-turn to allow dividend payments to shareholders while still taking advantage of its 37 billion pounds bank bailout scheme.

Asked if talks were taking place, a Treasury spokesman said: "The details were set out clearly by both the government and the individual banks on Monday."

HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), which Lloyds TSB is taking over, was one of only two FTSE 100 risers, up 0.5 percent, with tour operator Thomas Cook (TCG.L: Quote, Profile, Research, Stock Buzz) the other, up 1.2 percent.

Insurers fell after The Times said the Financial Services Authority had stepped up its scrutiny of leading life assurers amid concerns that crumbling investment markets were putting their solvency levels under pressure.