By Michael Taylor

LONDON (Reuters) - Britain's leading shares index fell sharply in late trade on Thursday as comments by the European Central Bank and increased economic fears weighed on banks, while the Bank of England held borrowing rates steady.

The FTSE 100 .FTSE was down 137.6 points, or 2.5 percent at 5,362.1 -- its biggest daily fall since July 11 -- after earlier touching a high of 5,541.7 in the session.

On a busy day for economic data, comments from ECB President Jean-Claude Trichet that euro zone economic data pointed to a weakening in growth at mid-year with inflation remaining high, weighed heavily.

He also said new measures to come in 2009 will require some counterparties to bring forward extra collateral.

UK banks accounted for over 40 negative index points, with Barclays (BARC.L: Quote, Profile, Research), HBOS HBOS.L, Lloyds TSB (LLOY.L: Quote, Profile, Research) and HSBC (HSBA.L: Quote, Profile, Research) down 3.3-6.8 percent.

Before the ECB comments, as expected the Bank of England kept interest rates unchanged at 5.0 percent for a fifth month running, but expectations are rising that recession worries could prompt a cut before the end of the year.

"On the one hand this is a measured reaction to the twin problems of inflation and a contracting economy - stagnation by any other name," said Felix Riley, CEO of ChoiceOdds.

"On the other hand, it could well be an admission of the lack of ideas present in the great and the not-so-good... the markets and industry would not be averse to an interest rate cut - or two."