LONDON (Reuters) – Weakness in banks and commodity stocks dragged Britain's leading share index lower on Monday as the protracted search for a Greek bond deal and concerns about economic growth kept investors nervous.

The FTSE 100 (.FTSE) index closed down 62.36 points, or 1.1 percent, at 5,671.09, extending Friday's falls and retreating further from Thursday's six-month closing high.

The FTSE volatility index (.VFTSE) was also active, up over 10 percent, its biggest daily percentage rise in a month and signaling an increase in risk aversion.

Banks (.FTNMX8350) were the biggest blue-chip casualties, hit by concerns that extra liquidity injections from central banks had not addressed the sector's fundamental problems.

Credit Suisse reduced its recommendation on the European Banking sector to "underweight" as it said the direct earnings impact of the European Central Bank's (ECB) late-December splurge of cheap, long-term cash for the banks appeared to be over-estimated.

Barclays (BARC.L) was the UK sector's biggest faller, down 4.2 percent, while Lloyds Banking Group (LLOY.L) shed 4.1 percent, and Royal Bank of Scotland (RBS.L) fell 3.5 percent.

EU leaders met in Brussels on Monday, the first summit of 2012, to sign off a permanent rescue fund for the euro zone — Britain's biggest trading partner — though the meeting was overshadowed by the unresolved Greek debt problems.

To avoid a chaotic default, which could have grave ramifications for sentiment and financial systems across the globe, Greece must secure a deal with its private bond holders and persuade international lenders it is serious about reforms in order to secure much-needed cash.

Fresh tensions between Greece and the euro zone's biggest economy Germany over the weekend regarding the debt bail-out terms also knocked sentiment.

"This isn't the first time Greece has shown resistance to accepting certain EU bailout terms and conditions, and given their weak position they may need to concede again, otherwise risk defaulting on the debt repayments due in March," said Jordan Lambert, Trader at Spreadex.

U.S. blue chips (.DJI) were down 0.6 percent by London's close, also suffering on concerns over the Greek debt situation, and after further dull U.S. economic data.

U.S. consumer spending was flat in December as households took advantage of the largest rise in income in nine months to boost their savings, setting the tone for a slowdown in demand early in 2012.

COMMODITIES DIP

Weakness in commodity issues also weighed on blue chips in London, with a retreat in crude knocking the integrated oils (.FTNMX0530) as an expected Iranian vote to suspend crude exports to Europe was postponed, easing supply concerns.

Miners (.FTNMX1770) also moved lower in tandem with weaker metal prices, as softer-than-expected U.S. economic data fuelled concerns about demand levels.

Defensive stocks dominated on the short list of blue chip gainers, led by drugmakers, with AstraZeneca (AZN.L) and GlaxoSmithKline (GSK.L) up 0.6 percent and 0.5 percent.

AstraZeneca will post fourth-quarter results on Thursday.

Utilities were in demand, with energy generator International Power (IPR.L) up 0.6 percent, and power distributor National Grid (NG.L) ahead 0.5 percent. Both firms are due to issue trading updates later this week.

And chip designer ARM Holdings (ARM.L) gained 0.3 percent, with its fourth-quarter results due tomorrow.

(Reporting by Jon Hopkins; Editing by Will Waterman)

NEW YORK (Reuters) – U.S. stocks rose on Thursday, putting the S&P on track for its third straight advance after earnings from Bank of America and Morgan Stanley lifted financials and strong demand at European bond auctions eased concerns over Europe.

Bank of America Corp (BAC.N) climbed 4.6 percent to $7.11 and was the top boost to both the benchmark S&P and the Dow Industrials. The bank swung to a fourth-quarter profit, helped by one-time items and lower expenses for bad loans. Morgan Stanley (MS.N) reported a quarterly loss that was narrower than expected, sending shares up 4.5 percent to $18.13.

With Wednesday's forecast-topping earnings from Goldman Sachs Group Inc (GS.N), results from the three big financials lessened some concerns about the sector's exposure in debt-strained Europe.

Some analysts would not be surprised by a pullback in the S&P 500 from highs not seen since last July, especially after recent weak results from JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N).

"No question we've seen some encouraging news with earnings and Europe, but the question is whether we're getting ahead of fundamentals," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio.

"Clearly things have improved, but it remains to be seen if there really has been a turn, or if this is just a January thaw ahead of more winter storms," McCain said. "There are still a lot of parts of the world with significant problems and concerning trends."

The Dow Jones industrial average (.DJI) was up 15.89 points, or 0.13 percent, at 12,594.84. The Standard & Poor's 500 Index (.SPX) added 4.99 points, or 0.38 percent, at 1,313.03. The Nasdaq Composite Index (.IXIC) gained 20.39 points, or 0.74 percent, at 2,790.10.

Financial shares have rallied since the start of the year. The S&P financial index (.GSPF) is up 8 percent for 2012, helping to push the S&P 500 up more than 4 percent. The financial index was up 0.7 percent for the session.

In a sign of optimism about Europe, Spain and France both drew strong demand at government debt auctions.

The Nasdaq got a boost from eBay Inc (EBAY.O), which reported better-than-expected results after the close on Wednesday. The stock was up 4.2 percent to $31.63.

After the close, quarterly reports are due from technology bellwethers Google Inc (GOOG.O), International Business Machines Corp (IBM.N), Intel Corp (INTC.O) as well as Microsoft Corp (MSFT.O).

Transportation stocks moved higher after Union Pacific Corp (UNP.N) reported higher quarterly profit and revenue that beat estimates. Union Pacific was up 3 percent to $113.05, while the Dow Jones Transportation Average (.DJT) gained 1.8 percent.

The number of Americans filing for new jobless benefits dropped to a near four-year low last week and factory activity in the Mid-Atlantic expanded, suggesting the economy maintained its momentum early in the year.

However, housing starts dipped, indicating the sector was still a ways from strengthening.

(Reporting By Ryan Vlastelica; editing by Jeffrey Benkoe)

NEW YORK – A rare disappointing earnings report from JPMorgan Chase battered bank stocks on Friday and helped push the rest of the market lower. Rumors of imminent downgrades for the credit ratings of European governments drove the euro down and sent investors streaming into U.S. debt.

The Dow Jones industrial average fell 48.96 points to close at 12,422.06, a drop of 0.4 percent. Markets were little changed late in the day after France’s finance minister confirmed that Standard & Poor’s had stripped the country of its AAA credit rating.

Before the market opened, JPMorgan said quarterly profit declined 23 percent from a year earlier, slightly worse than what analysts expected. The bank’s stock lost 2 percent, and other large banks followed. Morgan Stanley fell 3 percent and Goldman Sachs 2 percent.

It was the first time JPMorgan missed Wall Street expectations since the final quarter of 2007, a period that includes the financial crisis of 2008 and 2009. JPMorgan is widely considered one of the best-managed big banks. Traders figured that if JPMorgan had trouble as 2011 came to a close, the rest of the industry probably did, too.

“JPMorgan is the gold standard,” said Phil Orlando, chief equity strategist at Federated Investors. “So what happens to the banks that aren’t quite as strong and aren’t quite as well-managed?”

On trading desks, it’s called the “cockroach theory,” Orlando said. “You never see just one cockroach. If you see one, you know there’s bound to be a lot more.”

The euro slipped to its lowest level in 17 months after reports surfaced that S&P would downgrade European governments. After the markets closed in New York, S&P announced cuts for France, Austria, Italy and Spain.

The euro dropped 1.1 percent against the dollar to $1.27. Borrowing costs jumped for France, Italy and Spain, countries at the center of the region’s debt crisis.

The dollar and U.S. Treasury prices rose as investors moved money into lower-risk assets. The yield on the 10-year U.S. Treasury note fell to 1.86 percent from 1.93 percent late Thursday.

S&P warned Dec. 5 that 15 countries that use the euro were at risk of downgrades, citing higher borrowing costs for top-rated governments and disagreements among European leaders.

A cut to France’s credit rating may fail to push rates up for France because bond traders were prepared for it, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

The danger is to the European rescue fund. France is the second-largest contributor to the fund behind Germany. Bond traders could respond to the French downgrade by raising borrowing costs for the rescue fund, in the expectation that its rating will be cut next.

“The knock-on effects are far more significant than the impact on France itself,” LeBas said.

JPMorgan’s results opened the earnings season for banks on a sour note. Though an increasing pace of earnings reports may help steer the markets over the coming days, Europe’s debt crisis is likely to remain the focus.

In other trading, the S&P 500 index fell 6.41, or 0.5 percent to 1,289.09. The Nasdaq composite index fell 14.03, or 0.5 percent, to 2,710.67. Even with Friday’s fall, all three indexes posted gains for the second straight week. The S&P 500 index is up 2.5 percent to start the year.

Among stocks making larger moves than the overall market Friday:

• Diamond Foods Inc., which makes Emerald Nuts, plunged 10 percent after The Wall Street Journal reported that federal prosecutors had opened a criminal inquiry into its financial practices. The Journal also reported that two large shareholders had dumped most of their stakes in the company.

• Safeway Inc., the grocery store chain, rose 1.8 percent. An analyst at Jefferies placed a “buy” rating on the stock on the expectation that the company will benefit from an improving job market, especially in California.

• Alpha Natural Resources fell 10 percent, the largest loss in the S&P 500. The coal company bought Massey Energy last year, and the Justice Department is considering whether to prosecute the people who ran Massey when its Big Branch mine exploded in 2010.

Jan 9 (Reuters) – The Securities and Exchange Commission has urged banks to publish more details about their exposure to European sovereign debt, a factor in the recent bankruptcy of the futures brokerage MF Global Holdings Ltd (MFGLQ.PK).

In guidance issued on Friday, the regulator's Division of Corporation Finance said disclosures by publicly-traded financial institutions have been "inconsistent in both substance and presentation."

It said this could make it harder for investors to discern how much risk the banks are taking, both individually and relative to each other, and how the exposures will affect operating results or financial health.

The SEC urged that banks reveal direct and indirect exposures "separately by country, segregated between sovereign and non-sovereign exposures."

It said they should also provide more details on hedging, through such instruments as credit default swaps, and sums they might need to raise if forced to close out their positions.

"In determining which countries are covered by this guidance, registrants should focus on those experiencing significant economic, fiscal and/or political strains such that the likelihood of default would be higher than would be anticipated when such factors do not exist," the SEC said.

The non-binding guidance was issued about two months after MF Global filed for bankruptcy protection, amid a liquidity crunch spurred by investor and customer worries about its $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain.

MF Global had revealed that exposure in the prior week.

Worries about European debt exposure have also weighed on the stocks of Morgan Stanley (MS.N) and the investment bank Jefferies Group Inc (JEF.N).

The SEC is trying to learn more about some of the more opaque means that banks use to reduce the risk of credit losses, including derivatives and off-balance-sheet financings. This could reduce the threat of further liquidity shortfalls.

An SEC spokesman declined to comment.

Another regulator, the Financial Industry Regulatory Authority, has stepped up oversight of leverage at brokerages after concluding that MF Global had not been fully candid in disclosing its European debt exposure as little as one month prior to the bankruptcy.

Jon Corzine, a former New Jersey governor, stepped down as MF Global's chief executive on November 4, four days after the New York-based company's bankruptcy filing. (Reporting by Jonathan Stempel in New York; Additional reporting by Carrick Mollenkamp in New York and Sarah N. Lynch in Washington, D.C.; editing by Carol Bishopric)

NEW YORK (Reuters) – U.S. stocks fell slightly on European debt worries on Thursday, but technology and financial shares rose on data pointing to a strengthening U.S. economy.

Financial shares were the day's top gainers in volatile trading on Wall Street. At the same time, Europe's bank stocks fell on worries over their ability to raise capital amid a sovereign debt crisis.

Data signaled improvement in the U.S. labor market. More than twice the expected number of private sector jobs were added in December while initial jobless claims dropped 15,000 in the latest week. In addition, the pace of U.S. services growth quickened more than expected in December.

"The idea from the data is that our economy is picking up, so for banks, they'll start to see some loan growth, which will feed into their profits," said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia.

"That's different than concerns about capital and stability in Europe, which the region is still dealing with," added Dunigan, who helps oversee $105 billion.

European banks (.SX7P) fell 3.2 pct while the KBW Banks index (.BKX) rose 1.2 percent. Bank of America Corp (BAC.N) advanced 5.3 percent to $6.12.

Despite solid demand for a French government debt sale, investors fretted about more fragile economies, such as Italy and Spain. The euro, which has been closely correlated to global equities, fell to a 15-month low against the dollar on Thursday.

The Dow Jones industrial average (.DJI) was down 42.23 points, or 0.34 percent, at 12,376.19. The Standard & Poor's 500 Index (.SPX) was down 1.48 points, or 0.12 percent, at 1,275.82. The Nasdaq Composite Index (.IXIC) was up 7.20 points, or 0.27 percent, at 2,655.56.

The Nasdaq was boosted by strength in tech shares. Marvell Technology Group (MRVL.O) gained 5.4 percent to $14.95 while Seagate Technology (STX.O) was up 5.4 percent to $17.72.

The S&P retail index (.RLX) fell 0.6 percent as December sales rose, though discounts cut into profits over the holiday shopping season. Target Corp (TGT.N) fell 3.5 percent to $48.26 while Macy's Inc (M.N) added 1.9 percent to $33.27.

Dendreon Corp (DNDN.O) shares jumped 41.5 percent to $10.76 after the biotechnology company reported a more than three-fold jump in revenue of its prostate cancer vaccine.

But bookstore owner Barnes & Noble Inc (BKS.N) shares fell 24.4 percent to $10.21 after the company said it is considering splitting off its Nook electronic reader business and also cut its full-year earnings forecast.

(Reporting By Ryan Vlastelica; Editing by Kenneth Barry)