UPDATE 1-European mining and energy share indexes slump to 12-year lows

(Adds short interest data, details, quotes)

By Atul Prakash

LONDON, Jan 20 (Reuters) - European basic resources andenergy share indexes slumped to their lowest levels in more than12 years on Wednesday, with a sharp decline in oil and metalsprices scaring investors away from commodities stocks.

The STOXX Europe 600 Basic Resources index fell 4percent, while the region's oil and gas index slipped3.8 percent, with both touching their lowest levels since 2003.

Shares in commodities-related companies such as BHP Billiton, Anglo American, Glencore and RoyalDutch Shell fell 5.7 percent to 6.9 percent.

"We do not see any lasting potential for these sectors tooutperform and believe any recovery might be short-lived,"Christian Stocker, equity strategist at UniCredit, said.

"The trend of earnings estimates is declining strongly,relative valuation versus the overall market is still very high,and a lasting trend reversal in commodity prices is not insight. We recommend remaining underweight on commodity stocks."

Mining and energy stocks have been hit by a slowdown inChina, which is the world's second-biggest economy and a majorglobal consumer of metals and oil.

According to Thomson Reuters Datastream, the basic resourcesand oil and gas indexes trade on 13.5 times and 13.9 timesrespectively their 12-month forward earnings, against 14.2 timesfor the broader STOXX Europe 600 index.

Short interest - namely bets on a future fall in a stock -in mining and energy companies has also risen, according to datafrom Markit.

Short interest in BHP Billiton rose to 0.4 percent of sharesavailable for loan on Monday, against 0.15 percent the previoussession.

Companies such as Glencore and BP have also seen arise in short interest as measured by the amount of shares outon loan.

To profit from a stock going down, short sellers can borrowa stock and then sell it, expecting it to decrease in value sothey can buy it back at a lower price and keep the difference.

The European basic resources index has fallen more than 20percent in just three weeks of 2016 after slumping 35 percent inthe previous year, while the oil and gas index is down 13percent so far this year after falling 8 percent in 2015.

Technically, Britain's commodity-heavy FTSE index has also slipped into a "bear-market" territory after falling 20percent since its record high in April last year. The index wasdown more than 3 percent on Wednesday, in line with a fall inother major European stock indexes.

"We still do not believe the (mining) sector has arrived ata 'value point' as we consider that many commodity prices havenot yet bottomed," Investec analysts said in a note.

"As we accentuate the negative and eliminate the positive,we have naturally made further downgrades to our equity targetprices and caution that making key valuation judgments ischallenging until the latest round of asset impairments,dividend cuts and downgrades by credit agencies is complete." (Reporting by Atul Prakash; Editing by Sudip Kar-Gupta)