March 20 (Reuters) - London stocks fell 1% on Monday, as banks stretched declines after Swiss lender UBS's weekend deal to rescue rival Credit Suisse failed to stem fears of a global banking meltdown.
The blue-chip FTSE 100 (.FTSE) fell 1%, hitting its lowest in more than four months.
Banks (.FTNMX301010) slumped 3.2%, extending declines from last week, when they posted their worst weekly performance in more than a year. HSBC (HSBA.L) and Standard Chartered (STAN.L) were among the top losers, shedding 3.2% and 4.3%, respectively.
UBS (UBSG.S) on Sunday agreeing to buy Credit Suisse (CSGN.S) for $3.23 billion and actions taken by top central banks to bolster the flow of cash around the world failed to lift investor sentiment.
"The scale of the response from central banks at the weekend acknowledges gaps in the system, which will leave many investors unwilling to revisit financial stocks until such time as the full extent of the problem is known," said Richard Hunter, head of markets at interactive investor.
UK's oil and gas index (.FTNMX601010) dropped 1.8%, tracking a decline of more than 2% in oil prices.
Precious metal miners (.FTNMX551030) jumped 5.3%, tracking strength in gold prices as investors fled to the safe-haven metal. GOL/L
The FTSE 100 has reversed its year-to-date gains, falling more than 2%, as fears of a meltdown in the global banking sector gripped investor sentiment.
The more domestically focussed FTSE 250 midcap index (.FTMC) shed 1.4% on Monday.
Along with the U.S. Federal Reserve policy decision on Wednesday, investors will be looking out for February UK inflation data, due on Wednesday, the final pit top to gauge the state of the economy before the Bank of England comes out with its decision on interest rate hikes later in the week.
Traders are evenly split between a 25 basis-points hike and the BoE keeping rates at the current level on Thursday.
