* FTSE 100 index closes 0.7 percent lower
* Extends losses on news of plane downed in Ukraine
* BP, Rexam down following new sanctions on Russia
* ITV gains after share purchase by Liberty
By Atul Prakash
LONDON, July 17 (Reuters) - Britain's top share index extended losses in late trading on Thursday after a Ukrainian official said that a Malaysia Airlines plane was shot down over eastern Ukraine by militants.
Jittery investors had already sold off stocks earlier in the session following Washington's move to target big Russian firms with new sanctions.
"The news of a Malaysian airliner crashing near the Russian border clearly had a major impact on the market in late trading," IG analyst Brenda Kelly said.
The blue-chip FTSE 100 index closed 0.7 percent lower at 6,738.32 points after hitting a one-week high on Wednesday, when mining companies got a boost from growth data from China, the world's largest metals user.
BP, down 1.9 percent, took the most points off the FTSE 100 as the United States imposed the toughest sanctions yet on Russia over what Washington says is Moscow's failure to curb separatist violence in eastern Ukraine.
The targets included Russia's largest oil producer Rosneft , 20 percent-owned by BP. Rosneft accounts for about a quarter of BP's production.
"Investors are afraid that the tension could escalate further. It's a concern for the market because Russia has said it will also come with some announcements to punish America and Europe. It's not good for sentiment," ABN AMRO equity sales trader Frank Bonsee said.
Rexam, which generates about 7 percent of its total revenue from Russia, fell 3 percent. A downgrade by Deutsche Bank to "hold" from "buy" on factors including stretched valuations added to selling pressure.
"Geopolitical worries continue to make the headlines ... That combined with the summer doldrums means that there is no rush to get involved buying stocks," Hampstead Capital hedge fund manager Lex van Dam said.
Among stand-out losers, Britain's biggest sporting goods retailer, Sports Direct, posted a 20 percent rise in full-year profit and said it had made up with Adidas AG after a row over supplies of soccer boots and shirts.
Its shares fell 2.2 percent, with analysts saying that the stock was not cheap given the uncertainties regarding Adidas and corporate governance. The Sports Direct board has wrestled for years over bonus payments to founder Mike Ashley.
However, the index's losses were capped by some strong gainers. ITV surged 6 percent after cable group Liberty Global bought a stake in the free-to-air broadcaster from ITV's biggest shareholder BSkyB, sparking speculation of a full takeover.
"ITV is now likely to be seen as a potential M&A story," Liberum analysts wrote in a note. "We would not expect an immediate bid: but Liberty's purchase suggests it may be interested in acquiring the asset at some point."
ITV's trading volumes were more than five times its 90-day daily average, against just 50 percent of the 90-day average for the FTSE 100 index. (Additional reporting by Tricia Wright; Editing by Louise Ireland)