FTSE closes 5 percent lower

By Simon Falush

LONDON (Reuters) - The blue-chip shares tumbled 5 percent to their lowest close in over a month on Wednesday led by financials which were thumped on anxiety over their balance sheets.

Banks were hammered after Morgan Stanley said HSBC, Europe's biggest bank, may have to raise as much as $30 billion (20 billion pounds) in capital and halve its dividend.

Equities, already deep in the red in morning trade, fell further to mirror a slide on Wall Street after data showed that U.S. consumers cut their spending even more sharply than expected.

The FTSE 100 closed down 218.51 points at 4,180.64, falling for its sixth straight session to its lowest closing level since December 5. The UK benchmark is down 5.8 percent so far this month and fell more than 31 percent last year, its worst annual drop since its launch in 1984.

Morgan Stanley said HSBC's earnings will fall this year and its relative capital position is not as strong as in the past.

The underlying gloom on the economy highlighted by the U.S. retail sales data fed into a feeling that there will be no near-term respite for struggling UK companies.

"It's obvious that aggregate demand looks weak, feels weak and will probably stay weak for the foreseeable future," said Philip Isherwood, strategist at Dresdner Kleinwort.

Barclays fell 14.4 percent after announcing a further 2,100 job cuts to add to the 2,500 job losses announced on Tuesday.