Weak Commods, Banks Drag FTSE Down 1.1 pct

Weakness in heavyweight commodity issues weighed on blue chips as demand concerns mounted up after glum economic news.

* Oils, miners fall on demand concerns

* Banks haunted by balance sheet concerns

* Home Retail drops after glum trading update

By Jon Hopkins

LONDON, Jan 15 (Reuters) - Britain's top share index fell 1.1 percent in early trade on Thursday, extending its losses into a seventh straight session with commodities lower and concerns over banks' balance sheets haunting investors.

By 0905 GMT, the FTSE 100 index was 47.29 points lower at 4,133.35. The UK benchmark index tumbled 5 percent on Wednesday to its lowest closing level in over a month at 4,180.64.

Weakness in heavyweight commodity issues weighed on blue chips as demand concerns mounted up after glum economic news.

"There is really no good news about to provide any brake for the market," said Chris Bennett, senior trader at binary betting group ChoiceOdds,"with miners and oils likely to continue to retreat as the economic gloom mounts up."

Miners fell with weak metal prices, Vedanta Resources, Kazakhmys BHP Billiton, Rio Tinto and Anglo American down 0.4 to 4.7 percent.

Rio reported one of its biggest quarterly falls in iron ore output after demand from Chinese steel mills slumped late last year, but sales met its own reduced target.

Oil producers were weak as the crude price fell again, with BP, Royal Dutch Shell, BG Group and Tullow Oil down between 1.2 and 2.5 percent.

Banks were lower after hefty falls on Wednesday, with investors reviewing positions ahead of the ending of the short selling ban on financial stocks, on Friday.

Heavyweight HSBC lost 4.4 percent as worries about a possible capital raising, and a likely dividend cut sparked by a Morgan Stanley research note on Wednesday continued to bite.

Lloyds TSB, Royal Bank of Scotland and Barclays shed between 1.4 and 8.2 percent.

J. Sainsbury Chairman Philip Hampton is being lined up as the chairman of RBS, the Daily Telegraph reported, citing people close to the bank.

U.S. banks fell overnight on Wall Street with Citigroup and Bank of America facing new doubts over their ability to fund their massive losses, while U.S. data pointed to a deepening global recession.

The Federal Reserve said in its Beige Book report that the U.S. economy continued to weaken in the first days of the new year as labour markets slumped, housing markets sagged and manufacturing slowed.

Home Retail was a big FTSE 100 faller, down 6.3 percent as the household goods retailer reported a steep deterioration in gross profit margins in a trading update.

Also on the high street, mid-cap electricals retailer DSG International shed 6.3 percent after a weak Christmas trading statement.

However, music and books retailer HMV Group bucked the gloomy sector trend, adding 5.5 percent after its trading update, delivered late on Wednesday, proved less bad than feared.

Bookmaker William Hill also rose, up 4.1 percent, after a resilient trading update.

No important domestic data was due on Thursday so investors focused ahead to the European Central Bank interest rate decision, with the ECB expected to cut interest rates by 50 basis points from 2.5 percent.