FTSE dives 8% on growth fears; banks, commods sink

* FTSE 100 slumps 8.2 pct by midday

* Financials top-weighted losers

* Commodity stocks down on global recession fears

(For more on the financial crisis, click on [nCRISIS])

By Dominic Lau

LONDON, Oct 10 (Reuters) - Britain's top share index slid 8.2 percent by midday on Friday in a global sell-off in equities as investors feared government efforts to unclog liquidity strains would not avert a global recession.

By 1035 GMT, the FTSE 100 .FTSE was down 352.6 points at 3,961.2, below 4,000 for the first time in more than five years but above an early low of 3,874.0.

There was no gainer on the UK benchmark, which has lost more than 20 percent this week and is on track for its worst weekly loss since October 1987.

Banks were the top-weighted losers, with the FTSE 350 banks index .FTNMX8350 shedding more than 11 percent.

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) were down between 8.7 and 21.7 percent.

Wall Street plunged for a seventh straight session on Thursday as investors bet recent moves by authorities worldwide to thaw frozen credit markets would not be enough to avert a global recession. U.S. stock futures pointed to a sharply weaker start on Friday.

In Asia, Japan's Nikkei average .N225 slumped 9.6 percent -- its biggest one-day loss since the 1987 stock market crash.

"I am tempted to start buying some quality stocks which I think are particularly cheap at the moment, the likes of Smith & Nephew (SN.L: Quote, Profile, Research, Stock Buzz) for example," said Tim Whitehead, head of portfolio services at Redmayne-Bentley.

"But it will be interesting to see how this auction develops with the credit default situation with regards to Lehman Brothers in America and what the implications will be for the counterparties."

An auction to settle credit default swaps protecting the debt will be one of the largest settlements of contracts in the $55 trillion market, with around $400 billion in contract volumes estimated on Lehman's debt.

Whitehead said it was a good idea to keep cash levels reasonably high even though the FTSE 100 was below the 4,000 level, as the index may fall further.  Continued...