* FTSE 100 index sheds 1.4 percent
* Banks, commods down on euro-zone debt contagion fears
* Travel stocks knocked by Thomas Cook warning
By Jon Hopkins
LONDON, July 12 (Reuters) - Sharp falls in banks and commodity issues propelled Britain's leading share index lower on Tuesday, as growing concerns about debt contagion in the euro zone hit investors' risk appetite.
Banks were the biggest blue-chip fallers, as investors shunned the sector on worries that the euro zone debt crisis could spread to Italy and ahead of impending stress tests.
The European Banking Authority (EBA) will publish stress test results for 91 of the region's top lenders on Friday.
By 1041 GMT, the FTSE 100 index had dropped 83.40 points, or 1.4 percent to 5,846.76, adding to the previous session's 1.0 percent fall, but was off earlier hefty lows which had taken it back below the 5,800 level.
Bill McNamara, technical analyst at Charles Stanley, noted that at 5,830, the FTSE 100 index had completed a 61.8 percent retracement of the rally that began at the end of last month.
"If this level (5,830) doesn't hold the implication will be that it is heading straight back down to test its recent lows, at 5,645 or so," McNamara said in a note.
Among the banks, Barclays was the worst off, down 2.5 percent, with Collins Stewart saying the firm is one of two European lenders with substantial retail and wholesale exposures to Italy.
Euro zone finance ministers on Monday promised cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain.
"We would suggest that the markets' focus on debt sustainability may highlight risks to current debt holding of European financials. We would expect continued underperformance of financials and Eurozone financials in particular," said Gerard Lane, equity strategist at Shore Capital.
Insurers also suffered, with Aviva and Prudential shedding 1.8 percent and 1.9 percent respectively, as investors' fretted over their exposure to government debt.
Heavyweight commodity issues fell back reflecting weak base
metal and oil prices
British consumer price inflation unexpectedly eased in June as retailers offered discounts on a number of electronic goods, the Office for National Statistics said.
Consumer prices fell 0.1 percent last month, the first June decline in the index since 2003, taking the annual inflation rate to 4.2 percent.
And Britain's goods trade deficit with the rest of the world widened unexpectedly in May to 8.5 billion pounds, casting doubt about the scale of net trade's contribution to second-quarter GDP data due later this month.
TRAVEL TURMOIL
Mid cap Thomas Cook was the day's biggest casualty, plunging 27.6 percent after Europe's second-biggest travel firm said its full year profit would be lower than expected due to a worse than anticipated impact from disruption in the Middle East and difficult trading conditions in Britain.
"We believe the "fundamental strategic and operational review" of the UK business is more sinister than the profits warning ... The shares are best avoided until clarity emerges," said Numis Securities in a note, cutting its rating to "reduce".
Among other travel stocks, TUI Travel shed 6.3 percent, while blue chip airline IAG dropped 3.2 percent, and InterContinental Hotels lost 2.1 percent.
There were just two blue chip risers, with retailer Marks & Spencer standing out, up 1.6 percent ahead of a first-quarter trading update due on Wednesday. (Editing by Jane Merriman)
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