* FTSE down 0.4 percent
* Banks, commodities slide on worries over U.S. default
* AB foods rises after Q3 update
LONDON, July 14 Britain's FTSE 100 index traded lower on Thursday morning, echoing overnight falls in Asia after a threat to the United States' Aaa Moody's rating.
Moody's ratings agency said after Wall Street closed on Wednesday it might cut the U.S. rating if lawmakers failed to agree to raise the country's debt ceiling.
Britain's top share index was down 23.28 points, or 0.4 percent, to 5,883.15 by 0741 GMT, handing back most of the previous session's 0.6 percent rise.
"It is jitters across the board," said Yusuf Heusen, senior sales trader at IG Index.
"There is (also) the (euro zone) contagion aspect; there are worries about Italy -- they have got a bond auction a bit later on today. Until that is out of the way, risk is off."
U.S. President Barack Obama clashed with Republican lawmakers on Wednesday at a White House meeting on deficit reduction that left a deal in question as the clock ticked toward a debt default.
Miners and integrated oil stocks fell as doubts over the sustainability of a sluggish global economic recovery caused investors to look at the demand outlook.
Rio Tinto , down 0.5 percent, fared a little better than its mining peers as Investec reinitiated coverage on the miner with a "buy" rating.
Bucking the weaker trend was precious metals miner Fresnillo , up 2.8 percent after posting record second-quarter silver and gold production and saying it remained on track to meet full-year output guidance.
Oil services firm Petrofac fell 2.3 percent with traders citing a downgrade by Barclay Capital to "underweight".
Banks were broadly weaker as their exposure to the global debt problems continued to weigh on the sector after Fitch Ratings on Wednesday downgraded Greece deeper into junk territory, citing the absence of a new and fully funded financing programme.
"As long as the U.S. debt situation and European sovereign debt issues continue, we are likely to see increased volatility to the downside in equities," said Manoj Ladwa, senior trader at ETX Capital.
Greece's prime minister, George Papandreou, said the euro zone and International Monetary Fund must approve a second bailout for his country quickly to avoid its economic reform plans collapsing, a German newspaper reported.
Lloyds Banking Group enjoyed some respite, rising 1.5 percent as Goldman Sachs raised its recommendation on the part state-owned British bank to "buy".
The broker says it was mindful of risks facing the group but, given the recent share price weakness and the potential for high steady-state returns and payout ratios, it recommended investors to "buy".
The world's largest-listed hedge fund firm Man Group was down 1.7 percent as HSBC cut its recommendation on the company to "underweight" from "neutral", questioning its outlook and saying the shares looked fully valued.
On the upside, Associated British Foods jumped 6.1 percent after a third-quarter update, which Investec described as "decent", although it did not anticipate any changes to its 2011 numbers and remained "happy buyers".
Kingfisher , Europe's biggest home improvements retailer, rose 0.9 percent and British engine maker Rolls Royce added 0.6 percent, as JP Morgan raised its recommendations on the companies to "overweight".
BSkyB climbed 0.4 percent, extending the previous session's gains after News Corp's withdrew its bid for the British broadcaster, with Nomura saying the move could pave the way for a return of cash to shareholders.
No key British data was scheduled for Thursday. (Editing by Dan Lalor)
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