UPDATE 1-Bank of England to test UK lenders' resilience to 35 pct fall in house prices

* UK test results due by end of year, after EU results

* UK pass mark based on full Basel III implementation

* Passing test won't necessarily mean no more capital needed (Adds detail)

By Huw Jones

LONDON, April 29 (Reuters) - Britain's lenders will have toshow they hold enough capital to withstand a near 35 percentslump in house prices and a spike in interest rates to 4percent, the Bank of England (BoE) said on Tuesday.

The BoE's Prudential Regulation Authority (PRA) said eightof Britain's biggest banks and building societies will have toundergo the so-called stress test, in some cases on top ofseparate European Union tests also announced on Tuesday.

Factoring in a slump in housing prices coincides withconcerns among economists that there is already a bubble inproperty prices in Britain's capital which is spreading to therest of the country, a view the BoE has played down.

The results of Britain's test will be published after the EUtest outcome has been made public in October, but before the endof the year.

Banks will have to show, in what will be an annual test,that they would still have a core capital ratio of equivalent toat least 4.5 percent of their risk-weighted assets if hit by aslump in house prices and higher interest rates.

"If a firm's capital ratio is projected to fall below the4.5 percent core equity Tier 1 ratio in the stress, there is astrong presumption that the Prudential Regulation Authority willrequire the firm to take action to strengthen its capitalposition," the BoE said in a statement.

A bank may even be required to take action to boost itscapital levels even if it ends the test at or above 4.5 percent.

The European Banking Authority, an EU watchdog, has set apass mark of 5.5 percent, but the BoE said the UK threshold isbased on full implementation of tougher global bank capitalrules known as Basel III. The EBA test pass mark is based onpartial application of the global rules.

"The criteria that they are testing look very sensible to me... They do these stress tests to demonstrate some robustness intheir approach, but the PRA's got a lot of discretion to say youdo or don't need more capital," said analyst Gary Greenwood atbrokerage Shore Capital.

Shares in the banks being tested generally rose furtherafter the BoE published details of its stress test.

The test of theoretical shocks will cover a three-yearperiod when interest rates would jump to nearly 4 percent andunemployment rises to 12 percent, the BoE said.

Sterling would lose nearly a third of its value in the firstyear of the test.

The BoE wants to move beyond a simple pass or fail test andinstead obtain data to check on the quality and not just thequantity of capital banks are holding in order to make ajudgement on how much is needed.

For Barclays, HSBC, Lloyds andRoyal Bank of Scotland, the exercise will come on top ofa common "stress test" 124 leading European Union banks willundergo in coming months.

The remaining four UK banks being tested only by the BoE'sexercise are Co-operative Bank, Nationwide, Santander UK (partof Spain-based Santander ) and Standard Chartered. (Additional reporting by Matt Scuffham Editing by DavidMilliken and David Holmes)