FTSE falls early on oils, banks; Rio soars

* Rio Tinto says to cut jobs, slash spending; stock surges

* Energy stocks ease as crude trades below $43 a barrel * UK economy shrank by 1 pct in 3 mths to Nov -NIESR

By Dominic Lau

LONDON, Dec 10 (Reuters) - Britain's leading share index slipped 1 percent early on Wednesday as weakness in banks and energy stocks offset gains in Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) after it allayed fears of an equity issue with job cuts and slashing spending.

By 0851 GMT, the FTSE 100 .FTSE was down 42.68 points, or 1 percent, at 4,338.58, after gaining 8.4 percent in the previous two sessions. However, the UK benchmark is still down 33 percent for the year on fears of a painful recession.

"We had some good days recently ... essentially I still see that as a dead cat bounce. We've still got some torrid days to come," said Howard Wheeldon, senior strategist at BGC Partners.

Miners added the most points to the index after Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz), saddled with nearly $40 billion in net debt, announced plans to cut 14,000 jobs, slash capital spending and boost asset sales as it battles a collapse in commodity markets.

Firmer metal prices also boosted the mining sector.

Rio soared nearly 11 percent, while 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), Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz), Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz), Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz) and Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) rose between 2.3 and 6.8 percent.

Energy stocks slipped as crude prices CLc1 traded below $43 a barrel. Both BP (BP.L: Quote, Profile, Research, Stock Buzz) and Royal Dutch Shell (RDSb.L: Quote, Profile, Research, Stock Buzz) fell 1.2 percent and Tullow Oil (TLW.L: Quote, Profile, Research, Stock Buzz) eased 0.5 percent.

"The confirmation of so much bad data in the UK yesterday was very surprising to actually see the market bounce. There is a bit of trepidation in the market this morning," said Manus Cranny at MF Global Spreads.

"This market looks as if in the near-term it may well just put in some kind of base level but I certainly don't think it's necessarily sustainable."

Britain's economy shrank by a full percentage point in the three months to November and the pace of contraction looks set to accelerate into the end of this year, the National Institute of Economic and Social Research said in its monthly assessment.

The think tank revised its GDP estimate for the three months to October to show a decline to 0.8 percent, having originally estimated a contraction of 0.5 percent. [ID:nL9307812]

The Financial Times said UK finance minister Alistair Darling is considering an extension of taxpayer guarantees to cover business lending, in an admission that the economy is still starved of credit in spite of the recent 50 billion pound bank recapitalisation.

Elsewhere, The Wall Street Journal cited people familiar with the matter as saying the U.S. Federal Reserve is considering issuing its own debt for the first time. [ID:nSP362426]

Also, the White House and Democrats are near a deal on a rescue for the battered U.S. car industry.

SHRINKING ECONOMY

Banks were weaker, with 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), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) down between 1.2 and 2.1 percent.

Elsewhere, Morrison Supermarkets (MRW.L: Quote, Profile, Research, Stock Buzz) gained 1.7 percent after JPMorgan raised its rating on the stock to "overweight" from "neutral".

The latest quarterly FTSE indexes reshuffle will be announced after the market close, based on Tuesday's closing prices, and traders expect Stagecoach (SGC.L: Quote, Profile, Research, Stock Buzz), Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz), Fresnillo (FRES.L: Quote, Profile, Research, Stock Buzz), John Wood Group (WG.L: Quote, Profile, Research, Stock Buzz) and Petrofac (PFC.L: Quote, Profile, Research, Stock Buzz) to exit the blue-chip index.

Tate & Lyle (TATE.L: Quote, Profile, Research, Stock Buzz), Serco (SRP.L: Quote, Profile, Research, Stock Buzz), Randgold Resources (RRS.L: Quote, Profile, Research, Stock Buzz), Amlin (AML.L: Quote, Profile, Research, Stock Buzz) and Home Retail (HOME.L: Quote, Profile, Research, Stock Buzz) are expected to be promoted to the top-flight.

Buyout firm Resolution (RSL.L: Quote, Profile, Research, Stock Buzz) opened at 113 pence versus its placing price of 100 pence. (Additional reporting by Jon Hopkins; editing by Simon Jessop)