RTRS: Growth gloom pushes FTSE to two-week closing low
* FTSE 100 down 3.6 percent
* Miners weaken on China service sector data
* Banks down on U.S. litigation threat, euro zone woes
By Tricia Wright
LONDON, Sept 5 (Reuters) - Britain's top share index was left nursing heavy losses on Monday after service sector data from China, the euro zone and the UK intensified concerns the global economy is facing another recession.
The FTSE 100 index ended down 189.45 points, or 3.6 percent, at 5,102.58, its lowest close since Aug. 22, as global growth in services came almost to a standstill last month.
Volume was 85 percent of the 90-day daily average and relatively light compared with Germany's DAX and France's CAC 40 . There was no chance of a fillip from U.S. markets, closed for the Labor Day public holiday.
Commodity-related stocks fell sharply as investors, still jittery after data on Friday showed U.S. jobs growth flatlined in August, were met by a survey revealing China's service sector grew in August at the weakest pace on record.
Xstrata led miners lower, down 6 percent, while BG Group was worst off among integrated oil stocks , off 5.2 percent, as investors fretted about the prospect of lower demand for metals and fuel.
"Everyone's on tenterhooks to see what happens tomorrow because, with Wall Street closed, we're not really likely to have that much feedback," Martin Dobson, head of trading at Westhouse Securities, said.
"I think Friday's events have been the trigger for today ... Probably the weak PMI (purchasing managers' indexes) data this morning didn't help matters ... There's no-one really looking to pick stock up in these downward moves."
Banks also exerted significant downward pressure on the index after a U.S. regulator sued 17 large banks and financial institutions on Friday over losses on about $200 billion of subprime bonds. [IDnN1E7810JZ]
Royal Bank of Scotland was the standout faller, down 12.3 percent, while Lloyds Banking Group and Barclays shed 7.5 percent and 6.7 percent respectively.
Gary Greenwood, an analyst at Shore Capital, said that while it is impossible at this stage to put an accurate estimate on the potential financial impact for the banks involved, "Royal Bank of Scotland is by far the most exposed".
Worries about the euro zone debt crisis added to the sector's weakness as a big fall in support for Angela Merkel's Christian Democrats in a regional vote on Sunday highlighted the German chancellor's waning popularity.
The sector was hurt too as credit rating agency Moody's said it was still reviewing several leading British banks for a possible downgrade.
"I really find it hard to see anything positive out there which is normally a great 'buy' signal, but I would not try to be a hero here," said Lex van Dam, hedge fund manager at Hampstead Capital, which has about $500 million of assets under management.
Brokers added to the gloom surrounding equities with UBS initiating coverage on global equities as "underweight".
It advised investors to seek out "quality", moving to an "underweight" rating in financials and materials and "neutral" on consumer staples. It kept its "overweight" rating on tech, healthcare and telcos.
Credit Suisse, meanwhile, proposed several ways to hedge against macro risk, including buying shares in firms -- such as drugmaker AstraZeneca -- with dividend yields higher than 10-year bond yields from G7 countries.
Randgold Resources was the sole blue-chip riser, up 1 percent, continuing its bounce after a poor production update recently and as investors bought the gold miner as a proxy for the precious metal.
(Additional reporting by David Brett; Editing by David Hulmes)
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