FTSE finishes lower as banks and commodities fall

By Atul Prakash

LONDON (Reuters) - The top share index closed 1.5 percent lower on Friday as concerns over more losses and fundraising dragged down banks, while investors took profits from recent gains in oils and mining stocks.

The commodities-heavy FTSE 100 .FTSE ended 87.6 points lower at 5,620.8 -- its fifth successive weekly loss. The index has fallen 6.5 percent this month and 12.4 percent in 2008, compared with gains in the previous five years.

"There are rumours regarding difficulties in the context of liquidity on the banks' balance sheets," said Graham Neale, head of equities at Killik.

"The banks have managed to get through the first phase of fund-raising rounds, but perhaps the market is beginning to realise that the recent fundraisings are not necessarily going to draw a line under their liquidity requirements for the medium term," he said.

HBOS HBOS.L dropped 4.9 percent to close near its rights issue price. Shares in the bank have tumbled over 12 percent since its update on Thursday, putting its 4 billion pound rights issue in danger of flopping.

Inflationary concerns stemming from a surge in oil and food prices have increased the possibility of a rise in interest rates in the euro zone in July, and strong retail sales on Thursday fanned bets of a rate increase.

And worries over banks showed little sign of receding, with shares in Merrill Lynch MER.N falling 3.4 percent in New York on market talk of a profit warning and additional writedowns. The company declined to comment.

A jump in one-week interbank lending rates put further pressure on the equities market, highlighting once again that the problems in the credit markets are far from over.