By Dominic Lau

LONDON (Reuters) - The FTSE 100 .FTSE index fell 0.5 percent on Wednesday, led by banks, commodity shares and Vodafone (VOD.L: Quote, Profile, Research) as investors wary of the lingering credit turmoil cashed in on the previous day's rally.

The FTSE 100 closed down 29.9 points at 5,880.1 in volatile trade, underperforming Germany's DAX .GDAXI and France's CAC-40 .FCHI, after surging 3.5 percent in the previous session.

"It's still very much the financial sector that has been hit hard. Other than that, profit-taking is the word I would use instead of panic selling. We have got a firm underlying tone on the market for the time being," a trader said.

"But I have to say that this past couple of days what we have been seeing as buying opportunities should be used as selling opportunities ... We are seeing a fair bit of people short covering from the sell-off. Certainly, I would be looking to probably sell short again and not be buying from here."

Fuelling fears over the fallout of the credit crisis, British specialist mortgage lender Bradford & Bingley BB.L took a 94 million pound write-down on its exposure to tarnished assets.

The mid-cap stock dived 23 percent, and soured sentiment towards financial shares in general.

Fellow mortgage lender Alliance & Leicester ALLL.L fell 7 percent and HBOS HBOS.L eased 1.2 percent. Barclays (BARC.L: Quote, Profile, Research), Royal Bank of Scotland (RBS.L: Quote, Profile, Research), Lloyds TSB (LLOY.L: Quote, Profile, Research) and Standard Chartered (STAN.L: Quote, Profile, Research) dipped between 0.1 and 1.3 percent.

Northern Rock NRK.L, which has been Britain's most prominent victim of the credit crisis, lost 9 percent. Two suitors competing to rescue the ailing lender have been told to improve their offers to beat the alternative of nationalisation, sources familiar with the matter said.