* FTSE 100 slides 1.7 percent by midday
* Weaker commodity prices weigh on energy stocks, miners
* Dollar gains ground
By Harpreet Bhal
LONDON, June 15 (Reuters) - Britain's blue-chip shares dipped 1.7 percent by midday on Monday, as investor confidence ebbed, prompting a retreat in commodity prices and falls in heavyweight miners and energy stocks.
The FTSE 100 lost 75.38 points to 4,366.57 by 1031 GMT after falling 19.92 points to close at 4,441.95 on Friday.
The index is down 1.4 percent this year, but a rebound in banking, mining and energy stocks driven by a recovery in commodity prices has helped the index surge 26.4 percent since hitting a six-year trough in March.
Analysts said investors were trading cautiously as the recent rally in UK stocks since March may have been overdone.
"Traders are waking up to the fact that if there was a recovery around the corner it is not as imminent as they thought it was and if it is coming it might not have the strength that people thought it might have," said David Morrison, market strategist at GFT Global.
Energy stocks took a beating after a firmer dollar pushed oil prices down from an eight-month high of $71.23 hit last week and commodity prices fell across the board.
BG Group, BP, Cairn Energy, Royal Dutch Shell and Tullow Oil fell between 1.6 and 3.6 percent.
The dollar rose on Monday after Russia's finance minister said the greenback's role as the world's main reserve currency is unlikely to change in the near future.
Miners were also lower, tracking weaker metal prices, with XStrata, Rio Tinto, Kazakhmys, Eurasian Natural Resources, Anglo American, Lonmin and BHP Billiton falling between 2 and 4.2 percent.
Banks were also weak, led by a 2.5 percent retreat by Royal Bank of Scotland and Barclays.
Lloyds Banking Group bucked the trend, gaining 1.4 percent, one of just three stocks in positive territory after the Times said at the weekend that the Commonwealth Bank of Australia may join a list of potential bidders for the third-party funds business of its investment management unit, Insight.
POSITIVE ECONOMIC SIGNS
However market bulls were able to take heart from a more upbeat assessment for the UK economy which indicated it is getting closer to emerging from a deep recession.
The Confederation of British Industry said on Monday that Britain will pull out of a recession earlier than previously forecast, but a sustained recovery was not assured.
The business group predicted the economy would stabilise in the fourth quarter of this year but said it would take until the beginning of next year to return to growth.
In contrast to the optimistic view in the UK, China said its economy would not experience a rapid recovery as it would take time to find a new growth engine to replace sagging exports.
Li Yang, a former advisor to the People's Bank of China, said the world economy would need at least five years to fully get over the slump.
Finance ministers of the Group of Eight nations agreed over the weekend that the global economy was showing encouraging signs of stabilisation but recovery remained shaky, and they said they would consider how to unwind rescue steps.
No major UK economic data will be released on Monday, but investors will eye a welter of important figures due later this week, including May's CPI numbers on Tuesday.
Across the Atlantic, after Friday's steady University of Michigan consumer sentiment index reading, the June New York Empire State manufacturing index is seen improving to -3.50, up from the -4.55 reading in May.
(editing by John Stonestreet)