* FTSE 100 down 0.2 percent; banks biggest fallers
* ICAP, Compass drop after trading updates
* U.S. GDP data eyed; due at 1230 GMT
By Tricia Wright
LONDON, Sept 30 (Reuters) - Weak banks dragged Britain's top share index lower on Thursday after Ireland put a price on the Anglo Irish Bank bailout and Moody's downgraded Spain's credit rating by one notch to Aa1.
By 0812 GMT, the FTSE 100 was off 11.18 points, or 0.2 percent, at 5,558.09 after it closed 9.17 points, or 0.2 percent, lower on Wednesday at 5,569.27, ending a surprisingly strong month and the quarter in dull fashion.
The UK benchmark is up 6.3 percent so far in September.
Banks extended the previous session's sharp losses, shedding 0.5 percent, on persistent concerns about the debt situation in Europe.
Ireland's central bank has put a 34 billion euro ($46.2 billion) price on bailing out Anglo Irish Bank under a worst-case scenario and said Allied Irish Banks needs to raise an additional 3 billion euros by the end of the year.
Ireland will aim to slice more than an existing target of 3 billion euros off its 2011 budget and will outline a plan in November to get its shortfall to below 3 percent of GDP by 2014.
Moody's Investor Service cut Spain's credit ratings to Aa1 from AAA, with a stable outlook, saying it sees weak economic growth prospects for the euro zone's fourth-biggest economy.
"Doubts are now being raised about the whole success of the reflationary effort to produce a sustainable recovery, and certainly the banking issue is one aspect of that -- it's a symptom of the more general malaise," Mike Lenhoff, chief strategist at Brewin Dolphin, said.
"Those doubts are being encouraged by a loss of recovery momentum that we've seen in the global economy, still the lack of bank lending that we're getting to see, and what is still widely regarded to be generally disinflationary -- if not ultimately deflationary -- pressures," he said.
ICAP TOP FALLER
ICAP shed 3.1 percent to top the blue-chip fallers' list as the world's biggest interdealer broker said increased interest costs were holding back earnings growth although it expected higher first-half revenues.
Compass Group was off 2.6 percent. The caterer said it expected full-year earnings to rise by around 15 percent after sales growth accelerated in the second half, boosted by new contract wins and improved retention of existing customers.
Rolls Royce slipped 0.7 percent after the aircraft engine maker said Chief Executive John Rose would retire in March 2011 and be replaced by John Rishton, the head of Dutch retailer Ahold.
Positive broker sentiment helped Smiths Group, up 0.4 percent, with Morgan Stanley hiking its target price for the technology group following its full-year results on Wednesday.
BP advanced 0.6 percent, building on gains made in the previous session when the firm said it was to fundamentally restructure itself in the wake of the Gulf of Mexico spill.
British house prices edged fractionally higher in September, a survey by mortgage lender Nationwide showed, bucking expectations for a third successive monthly decline.
And British consumer confidence weakened more than expected in September as people's outlook on their own finances and the economy as a whole darkened, a GfK/NOP survey showed.
Investors will be more focused on the final reading for U.S. Q2 GDP, due at 1230 GMT, although no revision is expected to the 1.6 percent quarter-on-quarter provisional growth number. (Editing by Michael Shields)