FTSE falls 0.9% early, led by banks and miners

* FTSE 100 falls 0.9 pct * Miners track weaker metal prices * Banks fall on economic growth fears

* LSE down after FT says exchange to slash fees

By Dominic Lau

LONDON, Sept 1 (Reuters) - Britain's leading shares index fell early on Monday, snapping a three-day winning run, as fears of a deeper and longer UK slowdown weighed on banks, while weaker metal prices hit mining stocks.

By 0751 GMT, the FTSE 100 was down 48.9 points, or 0.9 percent at 5,586.7, after gaining 4.2 percent last month. The UK benchmark is still down nearly 13 percent so far this year.

UK Finance Minister Alister Darling said on Sunday that Britain's economic downturn was likely to be deeper and last longer than originally feared and it might turn out to be the worst for 60 years. [ID:nLU732328] Banks fell, with Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) losing 0.5 to 2.2 percent.

"The outlook for the UK economy over the next 12 month is pretty grim without a shadow of doubt. Whether it will be as bad as Darling said it could be is another matter," said Peter Dixon, UK economist at Commerzbank.

"Stocks are lower everywhere. We have got oil a little bit firmer ... We also had a pretty weak end to the day on Friday in the U.S. which is also driving everything lower. The whole outlook at the moment is the credit crunch, which is making its presence felt in the real economy and the equity market."

In Europe, Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) agreed to buy Dresdner Bank from Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) in a $14.5 billion all-Germany deal that will break the country's banking mould and cost 9,000 jobs. [ID:nLV085611]

U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz), meanwhile, has "intensified" talks with Korea Development Bank to raise as much as $6 billion in a share sale that could be concluded this week, the Sunday Telegraph reported. [ID:nSEO87363]

On Friday, U.S. stocks tumbled, led by lower tech shares after computer maker Dell (DELL.O: Quote, Profile, Research, Stock Buzz) warned that companies worldwide are cutting back on technology spending.The U.S. market will be closed for a holiday on Monday.

In Asia, Japan's Nikkei .N225 lost 1.8 percent on Monday.

London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz) shed 3.2 percent. The Financial Times said the bourse will introduce on Monday deep fee cuts and incentives for traders in the latest sign Europe's exchanges are ratcheting up efforts to defend themselves against a wave of new entrants in equities trading.

A survey by property consultant Hometrack showed on Monday British house prices fell for an 11th straight month in August to stand 5.3 percent lower than a year earlier. [ID:nLT573640]

UK manufacturers were also bracing for a sharp fall in orders and weaker profit margins as a stagnant economy took its toll, a survey by the Engineering Employers Federation showed. [ID:nLT601039]

Property groups, retailers and consumer-related stocks all suffered, with British Airways (BAY.L: Quote, Profile, Research, Stock Buzz) down 2.1 percent, Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz) dropping 2.4 percent, Enterprise Inns (ETI.L: Quote, Profile, Research, Stock Buzz) losing 3.8 percent and British Land BLND down 2 percent.

MINERS FALL

Miners fell along with weaker metal prices. BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz), Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), Ferrexpo (FXPO.L: Quote, Profile, Research, Stock Buzz), Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) and Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) slipped between 1.1 and 1.7 percent.

Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) eased 1.2 percent. The president of Chinese aluminium maker Chinalco said the group may increase its minority stake in the miner if market conditions are right, but has no timetable for such a move. [ID:nSHA37236]

Energy stocks were mixed, with crude prices CLc1 rising more than $1 after energy firms in the U.S. Gulf shut down nearly all offshore oil output and a host of flood-prone coastal refineries ahead of Hurricane Gustav.

Royal Dutch Shell (RDSb.L: Quote, Profile, Research, Stock Buzz) and BP (BP.L: Quote, Profile, Research, Stock Buzz) were flat, while BG Group (BG.L: Quote, Profile, Research, Stock Buzz) and Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) lost 0.1 to 0.7 percent.

Petrofac (PFC.L: Quote, Profile, Research, Stock Buzz) was one of the seven gainers on the index, up 2.8 percent. The oil services firm and Mubadala Petroleum Services Company LLC announced a plans to set up a joint venture company, Petrofac Emirates LLC. (Editing by Chris Wickham)