* FTSE down 1.5 percent
* U.S. home sales data dampens mood
* Vedanta top faller on India ruling
By Tricia Wright
LONDON, Aug 24 (Reuters) - Britain's top share index closed lower on Tuesday after weak U.S. existing home sales data cast further doubt on the economic recovery story, with UK banks, miners and energy stocks bearing the brunt of the sell-off.
The FTSE 100 ended down 78.89 points, or 1.5 percent, at 5,155.95, its lowest close since July 20, having gained 0.8 percent on Monday.
The UK benchmark closed below 5,187.41, its 38.2 percent Fibonacci retracement of the peak in April to the low on July 1, with the next support level at 5,034.72, its 23.6 percent retracement level.
Existing home sales in the United States for July plummeted 27 percent, a drop that was twice as steep as expected, to an annual rate of 3.83 million units, far below the 4.7 million rate forecast by a Reuters poll of economists.
"We've had a raft of bad figures for the last month or so and the market's shrugged them off, but the weight of the bad news has really got too much," said Mark Priest, senior equities trader at ETX Capital.
"We'll probably see more of this," he added.
Miners and energy stocks were hurt by lower metals and crude prices, as the downbeat U.S. data reinforced worries about the outlook for demand.
India-focused mining group Vedanta Resources was the standout blue chip faller, off 7.6 percent, after India rejected its plan to mine bauxite in an eastern state over environmental concerns.
The blow comes as Vedanta seeks to buy a majority stake in Cairn India from its UK-based parent Cairn Energy, although India's trade minister said on Tuesday state-run Oil and Natural Gas Corp should have a say in the deal.
Cairn Energy fell 4.1 percent after the oil explorer struck gas in Greenland, which disappointed investors who had hoped for an oil find.
Chilean miner Antofagasta shed 1.5 percent after it trimmed its annual production target, even though it posted a near doubling in first-half earnings per share.
Global miner Rio Tinto, meanwhile, fell 4.3 percent after a Canadian newspaper linked it and a Chinese partner with a bid for Potash Corp, which is fending off a $39 billion hostile bid from BHP Billiton. Rio Tinto declined to comment.
Sticking with both heavyweight miners, South Africa's National Union of Mineworkers said that its members at a Rio Tinto-BHP Billiton joint venture will go on an indefinite strike from Friday following a wage dispute. BHP Billiton was off 1.5 percent.
Coal and base metals miner Xstrata dropped 2.9 percent after it announced a $381 million agreed takeover of Australian-listed Sphere Minerals.
BANKS WEIGH
Banks, closely geared to the overall health of the economy, were big fallers, with Royal Bank of Scotland the worst off, down 3.5 percent.
Britain faces the risk of sliding back into recession and the central bank's growth forecast for this year and next may be too optimistic, new Bank of England policymaker Martin Weale said in an interview with the Times newspaper.
Concerns about the economy weighed on Wolseley, the world's largest builders merchant distributor, which has substantial exposure to the U.S. Its shares shed 5.1 percent.
Irish building supplies giant CRH warned core earnings would fall 10 percent this year, pointing to mounting concerns over the economy in the U.S.
WPP, the world's largest ad firm by sales, which also has heavy U.S. exposure, fell 4 percent as it reported first-half like-for-like revenue up 2.5 percent, towards the lower end of forecasts from a Reuters poll, and warned of tougher comparatives ahead.
"Concern over global economic recovery continues to dominate traders' sentiment and as risk appetite ebbs away, equity prices seem to be in danger of going into free fall," said Ben Critchley, a sales trader at IG Index. (Graphics by Scott Barber; Editing by Sharon Lindores)