FTSE falls 2 pct on commods, banks; Tesco rises

* FTSE 100 falls 2 pct in early trade

* Commodities track weaker raw material prices, banks fall

* Tesco surges as says underlying Q3 sales rise 2 pct

By Dominic Lau

LONDON, Dec 2 (Reuters) - Britain's top share index fell 2 percent early on Tuesday, extending the previous session's sharp losses as the bleak economic outlook hit commodity stocks and banks, but grocer Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) soared after its trading update.

By 0831 GMT, the FTSE 100 .FTSE was down 81.71 points at 3,983.78, falling through the 4,000 level once again. The UK benchmark slid 5.2 percent on Monday and is down more than 38 percent for the year on fears of a deep global recession.

Heavyweight oil shares shaved more than 21 points off the index as crude prices CLc1 slipped below $48 a barrel. BP (BP.L: Quote, Profile, Research, Stock Buzz) lost 1.8 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) shed 2.1 percent, BG Group (BG.L: Quote, Profile, Research, Stock Buzz) dropped 3.8 percent and Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) fell 4.8 percent.

Softer metal prices weighed on miners, with Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz), Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz), Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) and Fresnillo (FRES.L: Quote, Profile, Research, Stock Buzz) off between 3.7 and 8.6 percent.

India-focused miner Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz) said it would spend $250 million to buy back up to 10 percent of its shares. Its stock was down 0.8 percent, faring better than the sector.

Banks were also big losers amid the darkening global economic outlook. Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) were down between 3.4 and 6.1 percent.

"We had a good week last week ... Unfortunately, we are back to square one in as much as trying to find which level the market is pricing in the inevitable global recession, which is pretty much being confirmed," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

"The question from here is what the level should be. Clearly we may get a couple of short-term boosts ... potentially from the BoE and the ECB in terms of interest rates."

The U.S. economy has been in recession for a year, the nation's business cycle arbiter declared on Monday.

Overnight, Australia slashed interest rates by a full percentage point and Japan's central bank said it would accept a wider range of corporate debt as eligible collateral to ease Japanese companies' quickly shrinking access to funding as the end of the year approaches.

U.S. stocks fell sharply, with the Dow Jones industrial average .DJI tumbling 7.7 percent and the S&P 500 .SPX sliding 8.9 percent, and in Asia, Tokyo's Nikkei average .N225 lost 6.4 percent.

Investors will eye interest rate decisions this week from both the Bank of England and the European Central Bank. The two central banks are expected to serve up further monetary policy easing on Thursday.

Later in the day, U.S. ADP National Employment data for November will give some indication for the closely-watched non-farm payrolls due out on Friday.

TESCO SHINES

Tesco (TSCO.L: Quote, Profile, Research, Stock Buzz) surged 6.2 percent after Britain's biggest retailer posted a 2 percent rise in underlying third-quarter UK sales and said new "discounter" products had drawn an extra 300,000 customers a week to its UK stores. [ID:nL2185901]

"This stock was priced for a profit warning and as we thought it has not materialised; what has is a robust, positive and clear message that the business is structurally and strategically well positioned for the consumer downturn," Nomura said in a note, reiterating its "buy" recommendation.

Within the food retailer sector, Sainsbury (SBRY.L: Quote, Profile, Research, Stock Buzz) sagged 3.2 percent and Morrison Supermarkets (MRW.L: Quote, Profile, Research, Stock Buzz) eased 0.6 percent.

As for high street retailers, Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz) was off 2.5 percent and Next (NXT.L: Quote, Profile, Research, Stock Buzz) fell 4.8 percent.

British Energy (BGY.L: Quote, Profile, Research, Stock Buzz) ticked up 0.7 percent. French utility EDF (EDF.PA: Quote, Profile, Research, Stock Buzz) said it had made commitments to European regulators as part of its proposed 12.5 billion pound ($18.55 billion) takeover of the UK nuclear operator.

(editing by John Stonestreet)