* FTSE 100 index closes down 1.4 percent
* Admiral falls after Oriel downgrade
* Eyes on Bernanke on Friday
By Joanne Frearson
LONDON, Aug 25 (Reuters) - Britain's FTSE 100 fell on Thursday, snapping three days of gains as investor hopes dwindled that Federal Reserve Chairman Ben Bernanke would signal more stimulus measures and a rumour about a German short-selling ban triggered profit taking.
The blue chip index fell deep into the red on talk a short selling ban may be enacted in Germany after the market close, though a German Finance Ministry spokesman said there were no plans for a general short-selling ban.
Italy, France, Spain and Belgium, however, extended their bans in a bid to cushion bank stocks from the euro debt crisis, but hinted the curbs could be lifted by October.
Traders said investors were selling as they took a more cautious view of speech by Bernanke at Jackson Hole on Friday, reckoning he will not unveil stimulus measures to support the struggling U.S. economy.
"FTSE has been tracking the German DAX on rumours about a short-selling ban," said Joshua Raymond, chief market strategist at City Index. "The rumour is an excuse to take profits off the table, even though nothing is confirmed."
Insurer Admiral Group lost 5.5 percent to become the bottom performer on the FTSE 100 , continuing its slide from the previous day after Oriel Securities cut the motor insurer to "sell" from "hold".
Volume for the stock, down 16.5 percent in the past two days following disappointing results, was heavy at five times its 90-day average.
Other financial stocks were on the worst performers list, with hedge fund manager Man Group down 4.6 percent and insurer Standard Life down 3.7 percent.
CHOPPY SESSION
The UK benchmark index FTSE 100 index closed down 74.75 points, or 1.4 percent to 5,131.10 in a choppy session, having been up as much as 5,254.17 and down as low as 5,102.06, with volume more than its 90-day daily average.
The blue-chip index had gained 3.2 percent in the previous three-sessions on the Bernanke speech hopes and had been higher for most of the morning.
"Should nothing be announced from the U.S., then we can expect a pullback next week, and much of this push is on expectations and not fact," Atif Latif, director of Trading Equities & Derivatives at Guardian Stockbrokers, said.
"QE3 may pose an issue as deflation is not a concern at the moment and until we enter a deflationary cycle then there may have to be an alternative to QE3," he said.
Concerns about a slowdown in the global economic environment and the debt situation in the United States and the euro zone have seen the FTSE 100 fall 15.7 percent since the July-August selloff began.
The index had started to dip in afternoon trade when U.S. jobless claims rose more than expected.
Banking stocks Barclays and Royal Bank of Scotland , however, bucked the trend and both rose 5.5 percent on technical reasons as traders said fund managers squared over-sold positions before the start of a UK bank holiday.
Barclay's had fallen 33.3 percent and Royal Bank of Scotland 37.3 percent from late July, when the sector was hit by news of a political gridlock on the U.S. debt ceiling talks.
Traders also said a Berkshire Hathaway's investment in Bank of America also helped lift sentiment in banking stocks. (Editing by David Holmes)
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