* FTSE down 1.1 percent
* Financials knocked by Lloyds, Schroders updates
* Rates stay on hold, payrolls eyed
By Simon Falush
LONDON, May 5 (Reuters) - Sliding commodity prices thumped energy stocks and miners while Lloyds Banking Group led financials down, pulling Britain's top share index lower on Thursday, with technicals pointing to further weakness.
Bearish investors came to the fore as heavyweight commodity stocks Royal Dutch Shell and Lonmin fell 1.8 and 4.1 percent respectively on lower crude and metal prices with the 19-commodity Reuters-Jefferies CRB index down 3.4 percent.
Silver miner Fresnillo fell 4.6 percent as the metal was set for its worst week in 30 years.
Confidence that a global recovery could keep demand for raw materials growing was undermined by U.S. data showing initial jobless claims rose to an eight-month high last week.
This made investors nervous ahead of Friday's non-farm payrolls data.
"Investors are positioned to the downside for the data, so even if it just matches expectations there's likely to be some recovery in stocks," said Richard Hunter, head of equities at Hargreaves Lansdown.
UK data highlighted the fragility of the domestic recovery as Britain's dominant service sector slowed more than expected in April.
The FTSE 100 closed down 64.09 points, or 1.1 percent, at 5,919.98, having fallen 1.6 percent on Wednesday.
Volumes were heavy at more than twice the average of the last 90 trading days.
Trade was dominated by the moves in commodity prices. Cruise company Carnival was the biggest riser, up 4.2 percent, as Brent crude fell by over 5 percent. However the falling oil price also lifted International Consolidated Airline Group, which added 2.8 percent.
Technical indicators pointed to scope for plenty of further weakness within the current trading range, analysts said.
"I can certainly see (the FTSE 100) taking out the recent low around 5,858 and it could go as low as 5,600, but it doesn't necessarily mean that the market will melt down," said Phil Roberts, chief European technical strategist at Barclays Capital.
He added that on the upside it would be unlikely to push much beyond the 6,000 level.
LLOYDS LOWER
Banks fell after Lloyds Banking Group, down 8 percent in heavy trade, took a 3.2 billion-pound ($5.3 billion) hit for mis-selling debt repayment protection insurance.
British blue-chip investment manager Schroders tumbled 9.2 percent after suffering an unexpected loss on its investments in the first quarter.
A decision from the Bank of England to keep rates on hold gave slight support for a short time to the index as some investors thought there was a small chance rates may rise.
A more dovish stance than some expected from Jean Claude Trichet, president of the European Central Bank, at a post decision press conference, after it too kept rates on hold reassured investors that monetary policy would not derail a shaky recovery.
While the overall mood of traders was downbeat, some company results offered a glimmer of optimism.
Smith & Nephew rose 3 percent, after the artificial knee and hip maker posted solid first-quarter results, prompting Investec Securities to upgrade its rating to "buy" from "hold".
Drinks maker Diageo, and Wm Morrison Supermarkets rose 1.5 and 1 percent respectively after both beat forecasts for the first three months of 2011. (Editing by Jon Loades-Carter)