Stocks weak, weighed by commodities, banks

The London Stock Exchange is seen during ther morning rush hour in the City of London April 11, 2011.

LONDON (Reuters) - The FTSE fell on Monday, easing further from four-month highs hit last week, weighed by a slide in banks and commodity stocks as expectations for stimulus measures in China and Europe took a slight knock.

The European Central Bank sought to quash speculation about the shape of its new bond-buying plans and the Bundesbank kept up its opposition to the programme, even after German Chancellor Angela Merkel voiced support for the ECB's crisis-fighting strategy last week.

The two central banks were commenting on a German magazine report over the weekend saying the ECB was considering setting interest rate thresholds for any further buying of euro zone bonds.

British bank shares had initially firmed on the German magazine report but fell back after the Bundesbank and ECB comments, reflecting the sector's heavy exposure to euro zone bonds. Global lender HSBC shed 1.2 percent.

"All it took to reverse this morning's positive start ... was for the Bundesbank to puncture this weekend's recycled story about the ECB capping peripheral bond yields. Today's market reaction really shouldn't have been a surprise given previous push back on this particular trial balloon," said Michael Hewson, Senior Market Analyst at CMC Markets UK.

At the close, the FTSE 100 index was down 28.05 points, or 0.5 percent, at 5,824.37, just holding above the 5,800 level after having reached a session low of 5,802.91.

U.S. blue chips tracked their European counterparts lower, with the Dow Jones off 0.2 percent by London's close.

Commodity stocks were weak in London, tracking falls in Brent crude and copper prices after a rise in Chinese home prices dented investor expectations for further interest rate cuts by China, the world's largest consumer of commodities.

Among the miners, Xstrata shed 3.4 percent, with investors cautious ahead of results due on Tuesday from the miner's predator, commodities trader Glencore.

Weeks from a key shareholder vote on its bid for Xstrata, Glencore is expected to stick to its $30 billion offer on Tuesday when it reports first-half profits dented by falling prices - quashing any hopes of an improved offer for now.

Xstrata also suffered from its exposure to Lonmin after a week of violence at the mid-cap platinum miner's Marikana mine in which 44 people died. Xstrata owns a 24.6 percent stake in Lonmin after an aborted bid back in 2008.

Lonmin slid for a sixth day, losing another 4.6 percent, as investors fretted over the prospect of a cash call to shore up the group's balance sheet and about the potential dismissal of 3,000 striking workers in South Africa.

Lonmin has yet to receive a firm commitment of support in the event of a rights issue from Xstrata, sources said.

Another mining loser was Eurasian Natural Resources, down 3.4 percent, as Credit Suisse cut its rating for the firm to "neutral" from "outperform", citing concerns over future earnings and the potential need for an equity raise.

DOWNGRADES IMPACT

Broker downgrades also weighed on two other blue chip firms.

Drinks can manufacturer Rexam fell 1.8 percent after Credit Suisse also downgraded its rating to "neutral", while IMI shed 1.6 percent as Jefferies cut its stance to "hold" ahead of first-half results from the engineer due on Wednesday.

There was little other corporate newsflow and no domestic economic data on Monday to provide any alternate direction, so the market largely just drifted lower, but some traders still saw a bias to the upside.

"I don't think there is any significant newsflow to create many banana skins in the next week or two, and without the banana skins the pain trade is still slightly on the upside ... We still have a lot of clients away for the next couple of weeks," said Andy Ashe, head of sales at Monument Securities.

(Reporting by Jon Hopkins; Editing by Ruth Pitchford)