FTSE slides as US data, credit worries hurt banks

By Rebekah Curtis

LONDON, March 6 (Reuters) - Britain's top share index slid on Thursday, with banks on both sides of the Atlantic hit by fears of more losses, while weak U.S. housing data fuelled concerns for a U.S. economy flirting with recession.

The Bank of England kept interest rates on hold at 5.25 percent earlier on Thursday, as expected, but is widely expected to cut them by the middle of the year to aid an economy buffeted by a global credit crunch.

The European Central Bank held interest rates at 4 percent.

The FTSE 100 .FTSE ended a volatile trading session down 1.5 percent, or 87.1 points at 5,766.4 as shares slid across Europe. The index has lost nearly 11 percent so far this year on fears of a U.S. recession and further credit-related losses at financial institutions.

Banks took a beating as U.S. bond insurer Ambac's (ABK.N: Quote, Profile, Research) move to shore up its balance sheet proved a disappointment.

U.S. stocks fell, led down by financials after news of a default at a home lender and a report showing U.S. mortgage foreclosures reached a record high.

FTSE 100 banks all fell and together took about 28 points off the index, with Barclays (BARC.L: Quote, Profile, Research) down 4.6 percent, Royal Bank of Scotland (RBS.L: Quote, Profile, Research) down 3.9 percent and Alliance & Leicester (ALLL.L: Quote, Profile, Research) down 3.6 percent.

"There's no reason why you'd want to look at financials for a long time," said Peter Dixon, an economist at Commerzbank.