By Michael Taylor

LONDON (Reuters) - The FTSE 100 .FTSE index of leading shares extended earlier losses to end 1.3 percent lower on Monday as financials and banks weighed, credit spreads widened and inflation data heightened economic concerns.

The blue-chip index fell 76.3 points at 5,707.7 to track losses across the Atlantic, where U.S. stocks were hit by renewed concerns over credit losses after insurer AIG (AIG.N: Quote, Profile, Research) received a rebuke from auditors over credit derivative valuations.

Insurer Resolution (RSL.L: Quote, Profile, Research) shed 6.2 percent and touched a near five-month low as traders cited concerns that an extension agreed by possible suitor Pearl with the Financial Services Authority could jeopardise the company's proposed takeover.

Resolution said completion of the deal was being delayed by about a month, to mid-March, to allow Pearl "to finalise discussions with the FSA regarding the timing of post-completion distributions of capital from the Resolution life companies".

Reflecting general nervousness, European credit derivatives index spreads hit record highs as fears persisted over the state of structured credit products, at the centre of a crisis in credit markets.

The tension hit bank stocks, as did price target cuts from HSBC for Barclays (BARC.L: Quote, Profile, Research), Lloyds TSB (LLOY.L: Quote, Profile, Research), HBOS HBOS.L and buy-to-let mortgage bank Bradford & Bingley BB.L, which all finished down between 1.7 and 3.3 percent..

Alliance & Leicester ALLL.L, also grappling with a price target cut, was down 4.5 percent.

Traders said the stock was also down due to disappointment over Spanish bank Santander's (SAN.MC: Quote, Profile, Research) decision last week to rule out a bid for Alliance & Leicester at the present time.