UPDATE 2-FTSE 100 closes at 8-1/2-yr low as lockdown spurs more selling

(For a live blog on European stocks, type LIVE/ in an Eikon
news window)

* FTSE 100 down 3.8%, FTSE 250 slides 3.8%

* Next, Primark closes all stores

* FTSE 100 eyes worst month since 1987

* Stocks back to levels before latest Fed move
(Updates with closing price)

By Sruthi Shankar and Devik Jain

March 23 (Reuters) - Britain's FTSE 100 fell to its weakest
close since October 2011 on Monday, as economists predicted a
contraction of the global economy and a raft of UK firms warned
of earnings hits amid the spread of the coronavirus.

The blue-chip index fell 3.8%, sinking back into the
red after a two-day bounce that had been driven by extraordinary
stimulus unveiled by governments and central banks last week.

The index erased all of its losses at one point on Monday
after the U.S. Federal Reserve rolled out measures, including
backing purchases of corporate bonds and making direct loans to
companies.

But those gains evaporated as investors continued to fret
over the severity and the prolonged impact of the outbreak.

"While central bank and fiscal action is absolutely crucial,
the key requirement to stop the market rout is investors
believing the virus is behind us," said Seema Shah, chief
strategist at Principal Global Investors.

"Until that happens, central bank and fiscal action will
quickly become out-dated, requiring policymakers to repeatedly
re-visit and multiply their stimulus plans."

British Prime Minister Boris Johnson warned over the weekend
the government may have to impose curfews and travel
restrictions, another potential blow for businesses.

UK clothing and homewares retailer Next said it
would close its stores from 1800 GMT on Monday until further
notice. Its shares closed down 11%.

Shares in Associated British Foods fell 7.5% after
it said Primark was closing all of its stores around the world,
a loss of roughly 650 million pounds ($760 million) worth of net
sales a month.

Publisher Pearson dropped 9% as it said it would
halt share buybacks and forecast a 25 million to 35 million
pound hit to operating profit this year due to the closure of
many of its academic testing centres.

Airlines including easyJet and IAG-owned British
Airways plunged again, with no announcement on the
outcome of discussions over support packages for their industry.

Investors took little comfort from a fresh round of stimulus
announced of Friday that included the British government paying
a massive share of private sector wage bills to discourage
bosses from firing staff. That came on top of aggressive
interest rate cuts from the Bank of England and billions of
pounds pledged as fiscal stimulus.

The FTSE 100 is down 35% from its peak in January and on
course for its worst monthly performance since 1987, while the
FTSE MID 250 index of midcap stocks is down more than
40% from its all-time high.

Goldman Sachs predicted global real gross domestic product
would contract by about 1% in 2020, a sharper economic decline
than in the year following the 2008 global financial crisis. It
saw advanced economies contracting "very sharply" in the second
quarter, including a 24% drop in the United States.

In one bright spot, hand sanitizer-maker Byotrol
surged 33.8% as it saw a surge in demand for its infection
prevention products amid the coronavirus health crisis.
(Reporting by Sruthi Shankar and Devik Jain in Bengaluru;
editing by Patrick Graham, Arun Koyyur and Andrew Heavens)