FTSE ends 2.6 percent lower

By Atul Prakash

LONDON (Reuters) - The blue-chip index ended sharply lower on Tuesday, with banks, led by Royal Bank of Scotland (RBS.L), falling on worries about further losses in the sector, while oils and miners slipped after recent gains.

The FTSE 100 .FTSE finished 146 points, or 2.6 percent, down at 5,479.9 after touching its lowest level in more than three months. It gave up a 1.7 percent gain recorded on Monday.

The benchmark index has lost nearly 13 percent from January to June after five consecutive years of gains and compared with a 6.2 percent rise in the first half of 2007.

On Tuesday, banks suffered heavily after new figures showed the manufacturing sector contracted in June at its sharpest pace since 2001, while house prices fell for an eighth straight month, darkening an already bleak economic outlook.

"We could see more uncertainty and possibly more writedowns. It's too early to be buying the banks," Jeremy Batstone-Carr, head of private client research at Charles Stanley, said.

"I would expect to see, if not in Q3 then over the second half of this year, the beginning of a rotation out of defensives into more cyclical sectors of the market, but I don't think we could say that this is going to happen now."

Barclays (BARC.L), Royal Bank of Scotland (RBS.L), HBOS HBOS.L, HSBC (HSBA.L), Lloyds TSB (LLOY.L) and Standard Chartered (STAN.L) were down between 2.0 to 5.1 percent.

Shares in Swiss bank UBS (UBSN.VX) fell to a 10-year low amid speculation it may announce more writedowns for the second quarter, potentially of around $5 billion.