The FTSE 100 dropped sharply early on Tuesday, led by falls in risk sensitive assets such as banks and commodity stocks as fears intensified over the sustainability of the global recovery.

The FTSE 100 <.FTSE> shed 61.37 points, or 1.2 percent at 5,140.19, erasing the 0.9 percent gain on Friday, as traders returned to their desks after a public holiday on Monday.

The retreat on London's blue chip index echoed overnight falls around the globe as nagging concerns about the pace of economic recovery dented investor sentiment.

Wall Street <.DJI> slid 1.3 percent as a statement from President Barack Obama fell short of addressing worries the recovery is faltering, while investors looked ahead with caution to important economic data coming this week.

Tokyo stocks shed 3.6 percent on Tuesday, their worst daily drop in three months, after the Bank of Japan's emergency moves the day before failed to curb the yen's strength and disheartened investors bailed out of the market.

There has been a concern for some time now that central banks have been running out of ammunition in term of ways of being able to stimulate the economy, Richard Hunter, head of UK Equities at Hargreaves Lansdown Stockbrokers said.

In London, the banking sector <.FTNMX1770> led on the downside, with Barclays off 3.0 percent.

Weakness was also seen in energy and mining stocks, which fell in tandem with commodity prices as the outlook for global demand clouded over.

Kazakh copper miner Kazakhmys was the top FTSE faller down 3.2 percent, while embattled oil major BP shed 1.6 percent.


Outsourcing company Serco Plc was a top faller, down 2.9 percent as BofA Merrill Lynch cut its rating to neutral from buy ahead of the UK spending review in October.

On the upside, chipmaker Arm Holdings , which has been the subject of M&A speculation involving its customer Apple Inc recently, rose 3.3 percent after U.S. peer Intel Corp unveiled a deal on Monday to buy German chipmaker Infineon Technologies AG's .

Distributor Bunzl , which supplies carrier bags, take-away boxes and hard hats, rose 1.7 percent after it beat forecasts with an 8 percent rise in first-half profit after completing two acquisitions and signalling it would buy more in the coming year.

Despite the fact that corporate earnings have been fairly strong both sides of the pond, unfortunately the bears are in the driving seat in as much as there are now concerns around whether that is sustainable for the third quarter, Hargreaves Lansdown's Hunter said.

The UK benchmark fell back below 5,187.41, its 38.2 percent Fibonacci retracement level of the peak in April to the low on July 1.

In terms of domestic economic data, British consumer confidence unexpectedly improved in August for the first time since February thanks to a more positive view on the economic outlook, a survey showed.

Investors will look at July's Bank of England mortgage lending and consumer credit figures, due at 9:30 a.m., for further clues on the health of the British economy.

(Editing by Sharon Lindores)