Blue-chip index fell to a two-month low on Wednesday, dragged down by commodity stocks after reduced prospects for fresh U.S. stimulus and deepening concerns over the euro zone's debt and growth outlook weighed on risk appetite.

The FTSE 100 <.FTSE> index closed at 5,703.77, down 134.57 points, or 2.3 percent - its steepest fall since mid-December.

It still outperformed core-Europe peers, however, with both France's CAC-40 <.FCHI> and Germany's DAX <.GDAXI> down between 2.8 percent and 3 percent, weighed by weak regional economic data and warnings from European Central Bank chief Mario Draghi on the outlook for the euro zone periphery.

However, after a strong first-quarter rally which saw the FTSE rise more than 3.5 percent, the market consolidation was to be expected, analysts said.

Markets don't rise in a straight line - any weakness over the next few weeks should be seen as an entry point to gain long-term exposure to equity markets which will be the best-performing asset class over the medium to long term, Henk Potts, market analyst at Barclays Wealth, said.

Energy stocks would be a particularly good area for investors, because high oil prices, which are here to stay, have not been reflected in terms of valuations in the sector, Potts said, adding that consumer discretionary and technology sectors were also attractive.

Energy stocks were the biggest drag on the index and International Power was among the most traded, seeing volume nearly three and a half times its 90 day average after the electricity supplier rejected a takeover bid.

Mining stocks were also heavy fallers, sliding in parallel with copper as weak trade data from mining heavyweight Australia further clouded the outlook for commodity linked stocks.

Silver producer Fresnillo , topped the losers' board with a 8.3 percent fall, while Russian sector peers steelmaker Evraz and precious metals miner Polymetal
were down 6.8 percent and 4.4 percent, respectively.

Domestic banks <.FTNMX8350> meanwhile, were led lower by Barclays , down 4.5 percent after weak demand at a Spanish bond auction exacerbated concerns over the debt-stricken country, where Barclays operates over 100 branches.

NEXT SALE

Next was a big individual FTSE 100 faller, down 4.0 percent in volume nearly three times its average after the retailer said its chief executive had sold approximately 7.4 percent of his stake, reducing his total holding in the business to around 0.9 percent

Drug stocks such as GlaxoSmithKline and Shire countered the broad cyclical weakness during much of the session as investors sought out their defensive qualities, but even these eventually pared early gains to end lower, leaving all FTSE 100 stocks down on the day.

The souring of risk sentiment was also apparent from the implied volatility on the index <.VFTSE>. Seen as a crude barometer of investor risk aversion, volatility rose 22.8 percent to a 4-week high.

For some, the index falls could have further to go.

We had some big moves over the last quarter, so there's been a lot of profit-taking over the past couple of weeks and sometimes that can snowball into further falls, Galvan trader Matthew Dickinson said.

(editing by Ron Askew)