FTSE falls to lowest close in three years

By Dominic Lau

LONDON (Reuters) - The top share index slid 2.7 percent on Friday to hit its lowest closing level in nearly three years, as banks fell on fears of more capital raising and worries about a bigger tax bill weighed on Vodafone.

The FTSE 100 closed down 145.2 points at 5,261.6, for a weekly loss of 2 percent -- marking an eighth straight week in retreat.

The benchmark index on Thursday closed in bear-market territory -- it is down 20 percent from a multi-year peak a year ago, and has fallen 17.8 percent so far this year.

"Earlier today, we were sitting on the same level that the market had commenced the week at and if there had been a close around that level then it would have looked like there had been a stalemate on the lows between bulls and bears, indicating that we had reached the bottom," said Angus Campbell, head of sales at Capital Spreads.

"The movement this afternoon was a clear indication that we haven't reached the bottom and the bears are still fully in control."

European shares also finished the day sharply lower, while U.S. stocks were down.

Banks were the biggest losing sector on the FTSE 100 on lingering concerns over the health of U.S. mortgage finance companies Fannie Mae and Freddie Mac. Shares in the two U.S. financial firms slumped more than 26 percent.

U.S. Treasury Secretary Henry Paulson gave no indication of an imminent bail-out of the mortgage providers after the New York Times said the government may take over them if their funding problems worsen.