* FTSE falls 0.3 percent
* Libya unrest crimps investors appetite for risk
* U.S. data prompts rebound in commodity stocks late on
By David Brett
LONDON, Feb 22 (Reuters) - Britain's top share index closed lower on Tuesday as troubles in the Middle East clouded sentiment, but bumper consumer confidence figures from the U.S. spurred a late rally and boosted commodity stocks.
The FTSE 100 closed down 18.04 points or 0.3 percent lower at 5,996.76, having finished at a two-week closing low on Monday.
"The 6,000-level will be a hard one to hold in the short-term until the situation in the Middle East has a little bit more direction," Martin Dobson, head of trading at Westhouse Securities, said.
Muammar Gaddafi vowed to die in Libya as a martyr in an angry television address on Tuesday, as rebel troops said eastern regions had broken free from his rule in a burgeoning revolt.
"There is probably more risk on the downside but the FTSE might hold better because of the gold and oil price being stronger, with its commodity focus," Dobson said.
The turmoil in the region and the threat of unrest spreading has hit stocks such International Consolidated Airlines and travel firm TUI Travel, whose businesses are directly exposed to the subsequent price pressures.
Both Brent and U.S. crude oil rallied to 2-1/2 year highs on concerns the revolt in Libya could spread to other major oil producers in the Middle East and North Africa.
Retailers were also weaker with Sainsbury down 1.5 percent and Argos and Hombase owner Home Retail off 1.0 percent, as commodity price pressures show no sign of easing.
Banks were mainly weaker as risk appetite remained largely off the table for investors. But Royal Bank of Scotland, which reports results on Thursday, rose 2.3 percent.
LATE RALLY
London's blue chips, however, rebounded off the session low of 5,926.55 after U.S. consumer confidence rose in February to a three-year high.
The improved optimism over the health of world's biggest economy fuelled demand for mining and energy stocks as confidence grew over the demand outlook for commodities.
The data from U.S. helped offset concerns of political unrest in Libya and the wider North Africa and Middle East region would derail the global economic recovery.
The FTSE volatility index, a barometer of investor anxiety, is up sharply on the week as investors have responded to the troubles.
Back on the downside, defence firm BAE Systems was the biggest blue chip casualty, down 4.3 percent on concerns more UK defence contracts will be cancelled to meet the British coalition government's goal of slashing military spending.
Defence-related engineer Smiths was also hit hard, down 1.1 percent.
Michael Hewson, market analyst at CMC Markets, said the mounting tensions in the Middle East and North Africa could tempt investors to test the FTSE support levels at 5,920/30 from the July 2010 lows at 4,790.
(Editing by Hans Peters; Graphic by Scott Barber)