* FTSE reverses last week's sharp gains
* Falling commodity prices hurt oil majors, miners * Defensive stocks climb as risk aversion takes hold
By Harpreet Bhal
LONDON, Sept 14 (Reuters) - Falling commodity prices pressured mining and energy stocks, dragging Britain's top share index 0.8 percent lower by midday on Monday while defensive issues gained as risk aversion took hold.
By 1059 GMT, the benchmark FTSE 100 shed 37.41 points to 4,974.06, erasing gains from Friday when the index hit its highest intra-day level since October last year at 5,038.76.
Crude prices hovered around $68 a barrel, weighed on by the dollar's rebound from a one-year low hit late last week, pressuring oil majors. BG Group, BP, Royal Dutch Shell and Tullow Oil shed 0.6 to 2.6 percent.
Metals prices also fell to multi-week lows on the back of a stronger dollar, hurting miners. Rio Tinto, Xstrata, Lonmin, Anglo American, Kazakhmys and Fresnillo fell 0.9 to 3.2 percent.
The FTSE has so far rebounded 44 percent from the lows hit in March, but remains around 8 percent below levels prior to the collapse of U.S. bank Lehman Brothers exactly a year ago.
"It (the fall in the index) is no surprise given the massive rally that we've seen over the course of the past few months," said Henk Potts, strategist at Barclays Stockbrokers.
"In the medium term, however, there are still reasons to be positive," he said citing the expectation of a rebound in corporate earnings next year and the rate of ratings upgrades as brokers turn optimistic.
Banks were lower as risk aversion crept in on the anniversary of collapse of Lehman. Ratings firm Moody's says the credit outlook for UK banks remains negative for the next 12 to 18 months reflecting the weakness of the domestic economic environment.
Barclays, HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds Banking Group fell 0.1 to 1.7 percent.
Among other fallers, private equity group 3i lost 3.3 percent, after the firm said it has agreed to sell a portfolio of investments in small European companies to a consortium of rivals for around 130 million pounds ($215.2 million).
Johnson Matthey dropped 3 percent as Morgan Stanley cut its rating for the fine chemicals and precious metals firm to "equal-weight" from "overweight" given limited upside to its increased price target of 1,450 pence due to the stock's underperformance.
DEFENSIVES UP
Gains in defensive stocks such as drugmakers and food producers helped limit losses on the index as investors flocked to assets perceived as having a lower risk factor.
Pharmaceutical firms AstraZeneca, GlaxoSmithKline and Shire put on 0.2 to 0.5 percent.
Defence companies, also seen as less risky assets, were higher with Cobham and BAE Systems adding 1.9 and 1.7 percent respectively.
Cadbury, which has soared this month after it rejected a bid approach from Kraft, advanced 0.6 percent on the possibility the U.S. firm could go hostile.
A letter from Cadbury Chief Executive Roger Carr to Kraft chairman and CEO Irene Rosenfeld said that the Kraft takeover proposal fundamentally fails to reflect its current value.
In the absence of UK economic data on Monday, investors were looking ahead to the August RICS UK house price survey, to be released overnight, British CPI numbers for August on Tuesday and a batch of retailers' first-half results later in the week. ($1=.6041 Pound) (Editing by Hans Peters)