* FTSE 100 down 1.8 percent
* Weaker commodity prices drag on miners, energy stocks
* Banks retreat as risk appetite ebbs
By Simon Falush
LONDON, June 15 (Reuters) - A retreat in mining and energy stocks, sparked by falling commodity prices, pulled Britain's top share index down 1.8 percent early on Monday.
By 0758 GMT the FTSE 100 was down 78.86 points at 4,363.09 after falling 19.92 points to close at 4,441.95 on Friday.
The index is down 1.4 percent this year, but has surged 26.4 percent since hitting a six-year trough in March, supported by a recovery in banking stocks and miners and energy companies buoyed by quickly recovering commodity prices.
But a sharp retreat in metal and crude prices on Monday, partly on the back of a stronger dollar, saw energy stocks and miners take the most points off the FTSE 100 index, which touched its lowest level in two weeks.
BP, Royal Dutch Shell, BG Group, Tullow Oil and Cairn Energy fell between 2.1 and 4.5 percent.
"There's a combination of nerves creeping into the market after the strength seen since March and the fact that the dollar's strength is hitting commodity prices, and this is having a big impact as they are such a large part of the UK index," said Keith Bowman equity analyst at Hargreaves Lansdown.
Miners were lower, with Rio Tinto, Kazakhmys, Eurasian Natural Resources, Anglo American, Lonmin and BHP Billiton falling between 2 and 7.4 percent.
Banks were also broadly weaker, with HSBC, Standard Chartered, Royal Bank of Scotland and Barclays down 0.5-1.8 percent.
Lloyds Banking Group bucked the trend, however, gaining 1.2 percent after the Times said over the weekend that Commonwealth Bank of Australia may join a list of potential bidders for the third-party funds business of its investment management unit, Insight.
ECONOMIC OUTLOOK
Despite the current dip in equity prices, there were some positive noises on the economic outlook.
Britain will pull out of recession earlier than previously forecast, though a sustained recovery is not assured, the Confederation of British Industry said on Monday.
The business group predicted the economy would stabilise in the fourth quarter of this year but said it would take until the beginning of next year to return to growth.
Meanwhile, the Group of Eight finance ministers said in a statement they believed their economies were stabilising but recovery from the credit crisis remained shaky.
The ministers said they had started to consider how to unwind the drastic measures taken to fight the credit crisis once economic recovery becomes certain.
No major UK economic data will be released on Monday, but investors will eye a welter of important figures due later this week, including May's CPI numbers on Tuesday, unemployment and the June Bank of England Monetary Policy Committee meeting minutes on Wednesday, and May retail sales on Thursday.
Across the Atlantic, after Friday's steady University of Michigan consumer sentiment index reading, the June New York Empire State manufacturing index is seen improving to -3.50, up from the -4.55 reading in May. (Editing by Will Waterman)