* FTSE down 2.2 percent

* Financials lead retreat

* Bailed-out RBS, Lloyds diverge on government plans

* Commodities fall on demand fears

By David Brett

LONDON, Nov 3 (Reuters) - Britain's leading share index dropped 2.2 percent in mid-session trade on Tuesday, with negative newsflow on the UK and global financial sector denting banks and contributing to a broad-based retreat in equities.

At 1142 GMT, the FTSE 100 .FTSE index was 111.56 points lower at 4,992.94, slipping below the 5,000 level for the first time since Oct. 2 having gained 1.2 percent on Monday.

Banks were hit hardest as Lloyds Banking Group (LLOY.L: Quote, Profile, Research) launched a record 13.5 billion pound ($22 billion) rights issue and along with rival Royal Bank of Scotland (RBS) (RBS.L: Quote, Profile, Research) agreed to sell off some businesses to limit their reliance on government support.