By Ana Nicolaci da Costa

LONDON, Dec 17 (Reuters) - Britain's top share index fell to a three-week low on Monday, as inflation fears knocked global equity markets and dented hopes the U.S. Federal Reserve would deliver more rate cuts to relieve downbeaten credit markets.

The FTSE 100 index <.FTSE> closed down 1.9 percent at 6,277.8, its lowest level in three weeks, tracking falls in European markets. The index is on course for its worst yearly performance since 2002.

Fears of dimming global growth prospects hit banks and commodity stocks the hardest. Banks were the biggest weight on the index, with Barclays <BARC.L> down 2.5 percent, RBS <RBS.L> falling 3.1 percent and HSBC <HSBA.L> shedding 1.6 percent.

Among miners, Rio Tinto <RIO.L> fell 3.2 percent, Anglo American <AAL.L> lost 3.8 percent, BHP Billiton <BLT.L> shed 4.3 percent, and Vedanta Resources <VED.L> lost 5.2 percent, tracking lower metal prices.

The downbeat tone was set by strong U.S. inflation data on Friday, which stoked worries that the Federal Reserve would be less aggressive in cutting rates.

"The concern that everybody now has is that the central banks will be unable to bring interest rates down to the extent required to turn things around," said Mike Lenhoff, chief strategist at Brewin Dolphin.

"But I just don't feel that the central banks are not going to bring interest rates down. They are going to have to bring interest rates down and they are going to have to bring them down quite sharply. And that process of bringing them down is going to put a floor on how far these markets fall."

Oil stocks fell along with crude prices, with heavyweight BP <BP.L> down 1.5 percent, and Royal Dutch Shell <RDSa.L> easing 1.2 percent.

CHRISTMAS BLUES

British general retailers fell sharply as analysts made investment ratings downgrades on signs they were suffering from poor trade in the crucial run-up to Christmas.

Seymour Pierce analyst Andrew Wade downgraded Next <NXT.L> to "underperform" from "buy" and Debenhams <DEB.L> to "hold" from "outperform".

Debenhams fell 7 percent, Next shed 4.5 percent, Home Retail Group <HOME.L> lost 5.7 percent, DSG International <DSGI.L> fell 3.8 percent, and Marks & Spencer <MKS.L> shed 3.7 percent.

But the biggest loser of the FTSE was Rexam <REX.L>, the world's biggest drinks can maker.

It fell 6.4 percent after Citigroup downgraded its rating on the stock to "hold" from "buy" and Merrill Lynch cut its price target to 570 pence from 600 pence. Rexam had already tumbled more than 16 percent on Thursday, when it warned that a weak dollar would hit its annual profit.

Among other losers, Aviva <AV.L> fell 4.4 percent after Britain's financial watchdog fined a unit of the insurer 1.26 million pounds for exposing its customers to fraud risks, the regulator's largest penalty to date for security failures.

BAE Systems <BAES.L> was a standout gainer, up 1.5 percent after the defence contractor said it expected to win a contract to test anti-missile technology on American Airlines aircraft. (Additional Reporting by Dominic Lau, editing by Will Waterman) (([email protected]; Reuters Messaging: [email protected]; +4420 7542 2575))

     
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