* FTSE 100 down 1.2 pct
* Miners weigh after BHP Billiton warns on China demand
* Vodafone leads gainers, adds most points to index
By Alessandra Prentice
LONDON, March 20 (Reuters) - Britain's top share index suffered its sharpest fall in two weeks on Tuesday, as concerns over materials demand in top consumer China hit commodities-linked sectors, marring a rally that had been part-driven by hopes for improving global growth.
The benchmark FTSE 100 index closed down 69.7 points, or 1.2 percent, at 5,891.41, having rallied more than 6 percent since the start of the year and after hitting an eight-month peak last week.
Miners, which account for a large part of the index, retreated 3.6 percent after the world's biggest, BHP Billiton , said it was seeing evidence of "flattening" iron ore demand from China.
Rivals Rio Tinto and BHP Billiton were among the steepest fallers, down 4.1 percent and 4 percent respectively in heavy volume.
While miners were the biggest losers on the day, the suggestion of economic slowdown in the world's second-largest economy also weighed on other sectors.
The majority of blue-chip stocks slipped into negative territory, while defensives gained, suggesting a tempering of the risk appetite which had fuelled the 2012 rally, market participants said.
"Valuations have moved, oil prices are higher and economic momentum is no longer accelerating, so it's only right that investors are taking some of the risk off the table -- the outlook is quite unknown," Gerard Lane, equity strategist at Shore Capital, said.
While off recent highs, Brent crude prices remain at elevated levels, a potential threat to the outlook for global growth.
Defensive food retailers were among the biggest gainers, with market leader Tesco up 0.5 percent, while peers Morrison Supermarkets and Sainsbury's rose 0.6 percent and 0.3 percent respectively.
"Following recent management changes and announced investment in staffing hours and lower prices, Tesco is addressing its troubled performance in its home market," ING said in a note, upgrading the world's third-biggest retailer to "hold" from "sell".
Still on the risk-averse theme, Vodafone, topped the leaderboard, rising 2 percent with shares exceeding their average 90-day trading volume by more than 50 percent.
Adding its weight to the move, Citi raised European Telecoms to "neutral" from "underweight", highlighting the sector's attractive valuation, especially on a dividend-yield basis.
A rise in market caution following the sharp rally in UK equities is also palpable in terms of the type of trades taking place, European equity strategist Edmund Shing said.
"We've seen quite a bit of action on derivatives relative to cash. Instead of committing cash, traders would rather buy a call option and limit the downside. It shows they're not that confident and don't want to commit the cash," Shing said.
"They seem to think the market can go up but are not that confident, given the strength of the rally we've already had."
From a technical standpoint the index enjoys strong support and is experiencing a temporary pullback before heading towards last year's highs in the 6,100 region, Valerie Gastaldy, general manager of Paris-based Technical analysis firm Day by Day, said.
"Today is a minor consolidation in the uptrend. We may have a few days moving sideways and not being very decisive, but we don't think that should be of concern, and we'll be looking to buy again in the near future," she said.