LONDON (Reuters (LSE: TRIL.L - news) ) - The blue-chip index fell early on Friday, as banking stocks slipped on a grim economic outlook and miners fell tracking a decline in metals prices.

By 9:34 a.m., the commodity-heavy FTSE 100 <.FTSE> was down 57.8 points, or 1.1 percent, at 5,418.8 points, after gaining nearly 1 percent in the previous session.

The index, which has fallen 16 percent this year after five successive years of gains, is heading for its seventh weekly losses in a row and on Friday was underperforming both the German and French markets <.GDAXI> <.FCHI>.

"It's gloomy, it's uncertain and there is nothing really to get excited at the moment. The rallies, when they come, do tend to be short-lived," said Tim Hughes, head of sales trading at IG Index.

An uncertain economic outlook continued to cast a shadow on the market. An annual discretionary income study by Ernst & Young showed the average household is now 15 percent worse off than it was five years ago.

House builder Barratt Developments (LSE: BDEV.L - news) <BDEV.L> told staff on Thursday that it was to cut 1,000 jobs cut from its 6,700-strong workforce, the Daily Telegraph said.

Banks continued to be hit, with Royal Bank of Scotland (LSE: 91ID.L - news) <RBS.L>, Barclays (LSE: BARC.L - news) <BARC.L>, HBOS <HBOS.L>, HSBC (LSE: HSBA.L - news) <HSBA.L> and Standard Chartered (LSE: STAN.L - news) <STAN.L> down between 0.7 and 2.1 percent.

"My gut feeling is that the banks are ready to turn the corner, but they are so susceptible. If there is another change in sentiment to the downside, then banking stocks are liable to get absolutely hammered again. They are very risky," Hughes said.

Strong crude prices fanned existing concerns about inflation, as price pressures threaten to jeopardise earnings and curb consumer spending, while poor U.S. jobs data on Thursday made investors cautious towards taking big positions in equities.

Crude prices, which hovered around previous session's record highs near $146 a barrel, have jumped about 50 percent this year, with recent gains made mainly on heightened tension between Israel and OPEC's second-biggest producer Iran.

The U.S. June employment report released on Thursday showed employers cut workers for a sixth straight month in June for the longest such streak since 2002, and the country's vast service sector unexpectedly contracted, underscoring the economy's frailty.

U.S. markets are closed on Friday for the Independence Day holiday.

MINERS DOWN

Miners slipped as base metal prices softened. BHP Billiton (LSE: BLT.L - news) <BLT.L>, Anglo American (LSE: AAL.L - news) <AAL.L>, Vedanta <VED.L>, Xstrata <XTA.L>, Antofagasta (LSE: ANTO.L - news) <ANTO.L>, Eurasian Natural Resources <ENRC.L>, Rio Tinto (LSE: RIO.L - news) <RIO.L> fell between 0.4 and 2.5 percent.

In industry news, BHP Billiton matched Rio Tinto's <RIO.L> near 100 percent price hike for 2009-2009 iron ore deliveries, Chinese industry officials said on Friday, ending protracted talks over contracts worth billions of dollars. <ID:nSP9603>

Energy stocks also fell. BP <BP.L>, Royal Dutch Shell (Amsterdam: RDSA.AS - news) <RDSa.L>, gas producer BG Group (LSE: BG.L - news) <BG.L> and Cairn Energy (LSE: CNE.L - news) <CNE.L> shed between 0.2 and 0.8 percent.

Bradford & Bingley (LSE: BB.L - news) <BB.L> fell more than 9 percent after the mortgage lender said it planned to increase its rights issue to 400 million pounds after U.S. private equity firm TPG Capital pulled out of a plan to buy a stake.

"For B&B, the capital position is ultimately unchanged; it will receive the same amount of capital but now from a larger rights issue," analysts at Cazenove say.

Shares in Marks and Spencer (LSE: MKS.L - news) <MKS.L> slid 5 percent to a new near seven-year low after joint house broker Citi cuts its rating to "sell" from "buy" and soft weekly sales data from rival John Lewis.

(Additional reporting by Dominic Lau and Steve Slater; Editing by Quentin Bryar)