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* Blue-chip FTSE 100 index closes 0.8 pct lower
* HSBC leads banking sector down
* Cautious trading ahead of general election
By Atul Prakash and Liisa Tuhkanen
LONDON, May 5 (Reuters) - Britain's top share index endedlower on Tuesday tracking sharp losses in the U.S. market, withHSBC leading the banking sector down after saying a bank levywas hampering its ability to pay a higher dividend.
A survey showing growth in Britain's construction industryslowed sharply in April and uncertainty about the outcome ofThursday's parliamentary election also dissuaded investors fromplacing strong trading bets.
After trading higher in the first, the blue-chip FTSE 100index gave up gains and finished 0.8 percent weaker at6,927.58 points, dragged down by a 2.2 percent fall in the UKbanking index.
Europe's biggest bank HSBC, down 3.2 percent, wasthe biggest faller in the banking index - despite a 4 percentrise in first-quarter pretax profit - after warning thatBritain's bank tax was preventing it from raising dividendpayouts and that was a key concern of investors.
"The bank continues to flex its financial muscles with areassuring update. However, concerns inevitably remain," saidRichard Hunter, head of equities at Hargreaves Lansdown.
"The scope of any further regulatory fines remains unclear,the increased cost of doing business especially in thecompliance area has once more received air time, whilst thepotential relocation of the business provides some uncertainty."
Manoj Ladwa, head of trading at TJM Partners, said thebanking sector also came under pressure following a sell-off onWall Street on data showing U.S. trade deficit rose in March,suggesting that economic growth contracted in the first quarter,concerns about Greece and jitters before the UK election.
Greece stepped up diplomatic efforts with its euro zonepartners to avoid running out of money this month, when it mustmake a big debt repayment to the International Monetary Fund ascash reserves dry up. Greek shares fell 3.9percent.
Investors kept a close eye on the UK election. According toa Populus poll, British Prime Minister David Cameron'sConservatives are level with the opposition Labour Party.
Voters in the world's fifth largest economy head to thepolls on Thursday with surveys suggesting that no party islikely to win an overall majority.
Losses recorded by the broader market, however, were kept incheck by a rally in commodity stocks.
The UK Oil and Gas index rose 1.3 percent asoil prices rose to trade near their 2015 highs after protestersshut down the eastern Libyan oil port of Zueitina. The miningindex rose 0.4 percent as prices of copper,aluminium and nickel rose 1.0 to 4.0 percent.
However, analysts remained sceptical about the continuationof a rally in energy stocks just on the back of oil price moves.
"It is good that oil prices are rebounding from theirlowest, but it's far too early to say that there's a definitiverecovery," Admiral Markets' analyst Darren Sinden said. (Additional reporting by Alistair Smout in Glasgow; Editing byMark Heinrich)
