UPDATE 2-UK watchdog's handling of insurance review "not finest hour"

* CEO Wheatley takes responsibility for FCA actions

* Wheatley says share price moves need investigating

* Wheatley says external review will be done as quickly aspossible (Adds more detail, updates shares)

By Huw Jones and Chris Vellacott

LONDON, March 31 (Reuters) - The UK financial watchdog'shandling of information that sparked a slump in insurancecompany shares was not its "finest hour," its chief executivesaid following criticism from an influential lawmaker.

Financial Conduct Authority (FCA) boss Martin Wheatley saidon Monday he takes responsibility for what happens at theregulator after Andrew Tyrie, the chairman of parliament'sTreasury Committee, described the watchdog's actions as an"extraordinary blunder".

The debacle over the FCA's release of price-sensitiveinformation on Friday about its planned insurance sector reviewis embarrassing for the regulator, which is trying to establishits credibility as it marks its first anniversary on Tuesday.

The FCA on Friday appointed an external lawyer to examinehow the watchdog released news earlier that day of its reviewinto whether insurers treated people locked into 30 millionpension and other savings plans fairly compared with newcustomers.

Shares in top insurers fell sharply after a newspaperinterview with a senior FCA supervisor prompted speculation theprobe could lead to changes that would affect the profitabilityof their products.

The regulator clarified its position in a statement early onFriday afternoon, almost six and a half hours after sharesstarted trading.

"Whenever markets move like they did on Friday there isalways scrutiny," Wheatley, told City Week 2014, an annualfinancial services conference in London on Monday.

"This was clearly not the FCA's finest hour, but it doesserve as a timely reminder to all parties involved of the careand thought that is needed when handling significant amounts ofinformation we hold as part of going about our business,"Wheatley said.

He later told reporters that the external review into theFCA's conduct will be concluded as quickly as possible.

Shares in listed life insurance companies rebounded onMonday after the FCA published its business plans for the year,confirming the probe would be less disruptive than investorsfirst feared on Friday.

Resolution closed 0.8 percent higher, while Aviva was up 1.5 percent, both outpacing their benchmark FTSE100 index which was 0.3 percent lower. Legal & General slipped 0.2 percent.

A senior board member of a FTSE 100 insurer said: "The FCAplan that came out today seems pretty benign and I wouldn't haveexpected any reaction to this had it not been for what happenedon Friday."

A senior executive at a large insurer said the manner inwhich the FCA had disclosed the review on Friday was"extraordinary".

"The impression was given around things like exit fees thatit was going to be a very draconian intervention. It was bad tohave given that impression but if that happens you have tocorrect it quickly," the CEO said. (Reporting by Huw Jones; Editing by Erica Billingham)