(Refiles to correct dateline to Sept 24)
* Dollar strength sees commodities retreat after Fed comment
* BoE's King urges caution on recovery
* G20 meeting starts; banking regulation on agenda
By David Brett
LONDON, Sept 24 (Reuters) - Britain's top share index fell 0.8 percent in early trade on Thursday, tracking losses in the U.S. and Asia overnight, as markets reacted cautiously to positive comments made by the U.S. Federal Reserve.
By 0802 GMT, the FTSE 100 was down 39.43 points at 5,099.94, having closed down 0.1 percent at 5,139.37 on Wednesday.
The Fed on Wednesday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.
The Fed also said it would slow its purchases of mortgage debt to extend that programme's life until the end of March, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction.
Manus Cranny, head of sales at spreadbetter MF Global, said investors were disappointed that the Fed didn't give a more accurate picture of when they might be looking to start unwinding their current stimulus plan.
"It would have been nice for an absolute timeline but history has taught us that that is just not the nature of the Fed ... they're not going to show all of their hands all at once," he said.
Banks were the biggest casualties as investors remained bearish ahead of a two-day G20 meeting, as world leaders look set to discuss banking reform.
Royal Bank of Scotland, Standard Chartered, HSBC, Lloyds Banking Group and Barclays lost 0.7-2.3 percent.
Investors were further chastened as Bank of England Governor Mervyn King urged caution as Britain's economy enters the recovery stage.
He asked for people not to get too carried away, cautioning any improvement is likely to be small compared to the sharp drop in output caused by the global financial crisis, in an interview published on Thursday.
Miners fell as metal prices waned on demand worries. Kazakhmys, Antofagasta, Lonmin and BHP Billiton dropped 1.2-1.7 percent.
Oil majors were mixed as crude prices hovered around $68 a barrel, as data showed a large rise in U.S. crude stocks and after the dollar rose against the euro, reducing the attractiveness of commodities as a hedge against inflation.
BG Group, Cairn Energy and Tullow Oil shed between 1 and 1.4 percent.
BP rose 0.1 percent. The oil major requested more time to meet the terms of an agreement with the federal government to improve safety at its Texas City refinery, the U.S. Occupational Safety and Health Administration said on Wednesday.
STOCK PICKING
Among individual gainers, Autonomy climbed 1.1 percent after Banc of America-Merrill Lynch raised its price target to 1,900 pence from 1,660 pence and repeated its "buy" rating, as the software firm announced it had entered into a license agreement with the European commission.
Intertek add 0.7 percent after Morgan Stanley upgraded its stance on the testing equipment firm to "overweight" from "equalweight" and lifted its target price to 1,440 pence from 1,210.
Cadbury rose 0.3 percent as Chief Executive Officer Todd Stitzer detailed potential benefits from a takeover by Kraft Foods Inc and discussed valuations with investors in comments that could set the stage for talks between the British confectioner and the world's No. 2 food company.
With no UK economic data due for release on Thursday, investors will be keeping a close eye on U.S. weekly jobless claims at 1230 GMT and U.S. existing home sales figures for August at 1400 GMT.
Sales of previously owned U.S. homes are expected to hit 5.35 million units in August after reaching 5.24 million in July, the highest since August 2007. (Editing by Rupert Winchester)