LONDON, Nov 6 (Reuters) - Britain's top share index was down 2.7 percent by midday on Thursday, having dramatically pared losses after a much bigger than expected rate cut from the Bank of England.
At 1219 GMT, the FTSE 100 .FTSE was down 123.26 points at 4407.47 points, after recovering from a session low of 4317.98.
The Bank of England cut interest rates by 150 basis points to 3 percent, its biggest cut since it was made independent in 1997. (For a TAKE A LOOK on the BoE rate cut, click on [ID:nL6644000])
"There is a growing feeling that the MPC has misjudged the severity of the recession and is therefore behind the curve," said Edward Menashy, Chief Economist at Charles Stanley.
"Taking the view that UK output will not reach the bottom until the second half of 2009, it is now possible to see base rates reaching a level of 2 percent over the course of the next year."
Most economists polled by Reuters had forecasted a half-point cut although several had changed their forecasts following a series of gloomy data.
Banks were weaker, but pared losses. Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) were down between 1.1 and 5 percent.
The European Central Bank is due to announce its rate verdict at 1245 GMT.
Energy firms were weak, as crude oil CLc1 dipped 1.8 percent to close to $64 a barrel.
Miners fell, tracking downward pressure on metals prices as the dollar climbed. Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz) slipped 7.4 percent, after the India-focused miner posted a 24.7 percent drop in first-half profit to $350 million, but said it was well placed to cope with lower metal prices.
Hedge fund Man Group (EMG.L: Quote, Profile, Research, Stock Buzz) fell nearly 30 percent, making it the highest loser on the index. The company reported a 24 percent fall in pretax profit to $622 million in the six months to end-September due to a drop in performance fees and amortisation charges.
Private equity group 3i (III.L: Quote, Profile, Research, Stock Buzz) also retreated, falling by 9.9 percent, after the firm said first-half revenues from company disposals were down 43 percent as the credit crisis had made it difficult to sell companies in which it had invested.
The BoE's interest rate decision comes at a time when British house prices are plunging further. House prices fell by a record 14.9 percent on the year in October, the Halifax house price survey showed. [ID:nL6214102]
Credit Suisse analyst Jonathan Pierce warned that British banks could face deterioration in conditions through to the first quarter next year.
Pierce said in a note that the deterioration "will be relatively severe" as the global credit crisis affects markets and the economy. Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) could face losses this year and next, he said.
"The cut was much greater than expected. My biggest worry is that the BoE has dropped its pants a little too much here," said Andrew Turnbull, senior sales manager at ODL Securities.
"If we don't see a strong rally after this dramatic cut I think investors will be worried that we have much less in our armoury to fight against a deflating economy." (Editing by Chris Wickham)
