Britain's banks reduced their exposure to European debt in the fourth quarter, Bank of England data showed on Friday, but remained vulnerable to an economic slump in the euro zone.

Total claims on developed European countries - which include loans and advances, commercial bills, certificates of deposit and government and corporate bonds - fell to $1.100 trillion (694.0 billion pounds) from $1.184 trillion in the previous quarter.

Banks cut their exposure to Germany by $42.6 billion to $187.755 billion, as well as to the Netherlands and Spain, but raised it in relation to France by $22.2 billion to $298.229 billion, driven by a rise in local claims on the public sector, the central bank said.

The data relates to a time last year when the debt crisis in the euro zone was at its most disruptive.

The biggest near-term risk is simply that the recession that is probably already underway in the euro zone causes losses on the biggest part of UK banks' exposures, namely lending to the non-financial sector, said Vicky Redwood, economist at Capital Economics.

Overall, Britain's financial institutions reduced their foreign claims further by $160.8 billion to $3.964 trillion in the fourth quarter, reflecting a decrease in claims on the bank sector and on the non-bank private sector. By country, exposures to the United States and Germany were cut the most.

France now represents the second-largest exposure to a single country for British banks, with a share of 7.5 percent of the total. Claims on the United States account for 27.5 percent.

To see the data click on: http://www.bankofengland.co.uk/statistics/Pages/cwc/2011/dec/default.aspx

(Reporting by Olesya Dmitracova; editing by Ron Askew)