FTSE sags 2.9%; commodities hit by recession fears

* FTSE 100 slides 2.9 pct by midday

* Commodity stocks down on concerns of slowing demand

* Banks, retailers hit by recession fears

(For more on the financial crisis, click on [nCRISIS])

By Dominic Lau

LONDON, Oct 22 (Reuters) - Britain's FTSE 100 .FTSE slid 2.9 percent by midday on Wednesday, as recession fears hit heavyweight commodity stocks and banks, with investors worrying about metal demand and more soured loans.

By 1029 GMT, the FTSE 100 was down 122.47 points at 4,107.26, after losing 1.2 percent on Tuesday to snap a two-session recovery run. The UK benchmark is down 36 percent for the year.

Energy stocks fell along with lower crude prices CLc1, which traded below $70 a barrel, on growing fears that output cuts by producer group OPEC will not be enough to offset weakening energy demand from leading consumers.

BP (BP.L) sank 3.6 percent, Royal Dutch Shell (RDSa.L) sagged 3 percent, Cairn Energy (CNE.L) lost 2.3 percent and Tullow Oil (TLW.L) dropped 3.1 percent.

Weaker metal prices also weighed on mining stocks, with BHP Billiton (BLT.L), Rio Tinto (RIO.L), Xstrata (XTA.L), Antofagasta (ANTO.L), Anglo American (AAL.L), Vedanta Resources (VED.L) and Kazakhmys (KAZ.L) falling 4.9 to 11.8 percent.

BHP warned that Chinese demand was set to weaken, but the company showed little sign of trimming production, lifting quarterly iron ore output by 15 percent.

U.S. stocks dropped on Tuesday after a flurry of disappointing earnings and as commodity-related shares sank on fears of a global recession. In Asia, Japan's Nikkei average .N225 tumbled 6.8 percent to its lowest close in a week.

Bank of England Governor Mervyn King said in a speech on Tuesday night that Britain's economy was probably entering its first recession in 16 years, and the outlook has not worsened as rapidly as it has in the past month for a very long time. [ID:nLAG003088]

"Each day that comes along brings yet another reality check of what we have to face. It's going to be tough," said Howard Wheeldon, senior strategist at BGC Partners.

"Will we return to the lows? No. We will bounce around. Volatility will remain. The worse may be over but the cure is long way off."

The Bank of England minutes showed all nine Monetary Policy Committee members voted for this month's globally co-ordinated 50 basis point emergency cut in interest rates.