FTSE 100 drops on banking stocks, Flutter Entertainment weakness

March 1 (Reuters) - London's FTSE 100 fell on Tuesday as the worsening Ukraine crisis pushed shares of heavyweight banking and Russia-exposed miners lower, while Flutter Entertainment dropped on downbeat earnings.

The blue-chip index ended 1.7% lower, with HSBC , Prudential, Lloyds Banking Group and Barclays among the biggest drags.

Yields on UK bonds - both longer and shorter-dated - dropped as investors sought safe investments.

Russia on Tuesday warned Kyiv residents to flee their homes and rained rockets down on Kharkiv, as Russian commanders who have failed to achieve a quick victory shifted their tactics to intensify the bombardment of Ukrainian cities.

Russia-exposed miners Polymetal and Evraz tumbled further, paving the way for the shares to drop out of the blue-chip index at this month's quarterly review.

"Russia is starting a new phase of the campaign, bringing a lot more force to bear ... which poses the risk that the West will encounter growing pressure to sanction Russian oil and gas exports, with all that would entail," said Neil Wilson, chief market analyst at Markets.com.

The FTSE 100 has slipped 0.7% so far this year, still significantly outperforming the wider European stock aggregate and the S&P 500 thanks to solid gains in commodity-focused shares.

The domestically-focused mid-cap index fell 2.8%.

Shell dipped 1.1% after the company said it would exit all its Russian operations, including a major liquefied natural gas plant, becoming the latest oil major to quit the country following the invasion of Ukraine - which Moscow calls a "special operation."

Among other stocks, Flutter Entertainment dropped 12.4% after the gambling firm posted an 11% fall in 2021 earnings.

Bucking the sombre mood, AstraZeneca shares rose 1.8% after it agreed with Swiss biotechnology firm Neurimmune to develop an antibody-based therapy for a rare, underdiagnosed condition that can lead to heart failure in a deal valued up to $760 million. (Reporting by Amal S and Shashank Nayar in Bengaluru; Editing by Sherry Jacob-Phillips and Mark Potter)