German short-selling ban knocks FTSE, commods down

* FTSE falls 2.4 pct; Germany announces short-selling ban

* Commodities, banks slide as risk appetite wanes

* ICAP, Experian report upbeat results

LONDON, May 19 (Reuters) - Britain’s top shares suffered steep falls by midday on Wednesday, after Germany’s move to limit short-selling reignited uncertainty among investors, with risk sensitive commodity-linked stocks and banks hardest hit.

By 1031 GMT the FTSE 100 .FTSE was down 127.10 points, or 2.4 percent, at 5,180.24, having added 0.9 percent on Tuesday.

The ban on naked short sales of euro-denominated government bonds, credit default swaps based on those bonds, and shares in Germany’s 10 leading financial institutions was announced after European markets closed on Tuesday. [ID:nSGE64I073]

Germany’s decision left investors questioning what further measures might be taken, and did nothing to allay fears emanating from Europe’s debt crisis.

“The move by Germany is being seen as an attack on market speculators, which it blames for much of the uncertainty and subsequent weakness in equities and the euro,” Joshua Raymond, market strategist at City Index said.

“The problem is, however, that this move does not fix the reasons as to why investors have been bearish about the euro zone in the first place.”

Commodity-linked equities dropped as investors took money off the table from risk sensitive sectors. Miners Rio Tinto RIO.L, Xstrata XTA.L, Lonmin LMI.L, Kazakhmys KAZ.L and BHP Billiton BLT.L fell 5.3 to 7 percent.

Energy stocks were lower as crude fell below $69 per barrel, with BG Group BG.L, BG Group BG.L and Royal Dutch Shell RDSa.L down 0.7-1.9 percent.

“With sensitivities already very high and investors not really knowing the true implications of this move just yet, they have removed large chunks of money out of the riskier stocks,” Raymond added.

The FTSE, whose weighting is dominated by miners and banks, is down 4.4 percent on the year and 11 percent off its 2010 high hit in mid-April, weighed by euro zone uncertainty.

Meanwhile, the VDAX-NEW volatility index .V1XI, a gauge of investor risk appetite or aversion, jumped 18 percent after the announcement. The higher the volatility the lower investors' appetite for risk is.

U.S. futures for the Dow Jones DJc1, the S&P 500 SPc1 and the Nasdaq NDc1 were indicating a weaker start on Wednesday, adding to the previous sessions losses, as worries over tighter financial regulation put pressure on equities.


Risk sensitive banks were also lower. Barclays BARC.L, HSBC HSBA.L, Royal Bank of Scotland RBS.L and Lloyds Banking Group LLOY.L fell 1.1-5.4 percent.

ICAP IAP.L, the world's biggest interdealer broker, fell 4.3 percent, paring Tuesday's gains as it reported a good start to its financial year, but with investors wary of what impact any further trading regulations may have on business.

British credit information firm Experian EXPN.L outperformed the wider UK market, falling 1.3 percent after upping its dividend and topping forecasts with its results.

Home Retail HOME.L, which lost its dividend attraction on Wednesday, dropped 7.5 percent. Its shares were also weighed down by UBS which downgraded its rating and cut its forecasts on the owner of Argos and Homebase, citing potential threats to earnings and the spectre of M&A waning.

There were no stocks in positive territory by midday but defensive issues were outperforming the sell-off, with AstraZeneca AZN.L and GlaxoSmithKline GSK.L down 0.8 and 1.0 percent respectively. (Editing by Jon Loades-Carter)