By Atul Prakash
LONDON (Reuters) - Britain's top share index fell to a three-week low on Tuesday as lingering tensions between Ukraine and Russia hurt financials and China growth concerns prompted investors to trim their exposure to commodity stocks.
The blue-chip FTSE 100 index was down 0.3 percent at 6,672.85 points by 1135 GMT after falling as much as 6,660.59, the lowest since the middle of February.
The UK banking index fell 0.5 percent, the top decliner on the FTSE 100, with investors avoiding sectors exposed to geopolitical tensions over Ukraine that continued to build. With diplomacy at a standstill, Ukraine's acting president announced the formation of a volunteer national guard.
Shares in Barclays slipped 2.8 percent, while Royal Bank of Scotland dropped 2.3 percent.
"Investors are proceeding with caution as there are some concerns that the geopolitical tensions could escalate and a slower growth in China could hurt demand for materials," said Tom Robertson, senior trader at Accendo Markets.
"Any further tension could keep cyclicals under pressure."
Commodity shares lost ground on Tuesday, with the UK oil and gas index dropping 0.2 percent and the mining index down 0.1 percent on persistent concerns about raw materials demand in China after recent disappointing data.
But many fund managers with a longer-term view said the fact that falls in stock markets have been relatively short-lived points to underlying optimism that the FTSE will gradually rise later in 2014 as Britain's economic recovery strengthens.
"There's still money coming in, with net inflows coming into Europe," SVM Asset Management managing director Colin McLean said, adding the FTSE may hit a record high of 7,000 points in the second quarter of 2014.
While investors have taken money out of emerging markets, European stocks have attracted a record $36 billion so far in 2014, according to data from EPFR Global, with U.S. investors in the vanguard.
Analysts said a gradual recovery in the pace of economic growth, which was further reflected in manufacturing numbers on Tuesday, will also support equities in the longer-term.
Data showed British manufacturers started 2014 on a solid footing in January, with output growing by 0.4 percent in January from December and rising 3.3 percent from the same month last year.
"UK industrial activity continues to progress in the right direction at the start of the year. Business confidence indicators lost some steam in January-February, but remain elevated and still consistent with robust growth in the factory sector," wrote Annalisa Piazza, analyst at Newedge Strategy.
(Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans)