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UPDATE 1-Bank stocks push UK FTSE lower

* FTSE 100 slips 0.2 pct, close to key 5,800 technical level

* UK banks lead fallers after UBS downgrade

(Adds UBS downgrade on UK banks, further detail, background)

By Sudip Kar-Gupta

LONDON, Oct 2 (Reuters) - UK shares fell on Tuesday, led by banks after a sector downgrade by UBS, and analysts said the market would stay in a tight range while uncertainty over the weak economy and the euro zone persists.

The blue-chip FTSE 100 was down 0.2 percent, or 8.27 points, at 5,812.18 points.

Banking shares dominated the loserboard after UBS cut its rating to "neutral" from "buy", citing concerns the sector may need to raise new capital at some point.

Part-nationalised lenders Royal Bank of Scotland

and Lloyds

both falling by around 3 percent.

"The UK banks have not heeded exhortations to raise external equity in our view as they simply do not need it. However, we see a risk that the market will focus the absolute equity level requirement as leading to a risk of new equity issuance, to the detriment of current equity value," UBS wrote in a note.

Equity markets around the world have rallied sharply since stimulus measures taken by global central banks from July onwards to fight off the effects of the weakening global economy.

Yet despite a pledge by the European Central Bank to restart a bond-buying programme, many investors remain concerned by the euro zone's sovereign debt crisis, which has led to a bailout in Greece and is pushing Spain towards a similar move.

"The market wants to hear Spain come out and say 'we need money' before it can get a next leg up," said Hartmann Capital trader Basil Petrides.

Spanish government bond yields eased on Tuesday on signs that the country may be ready to ask for a bailout, although uncertainty over the timing of any request capped the move and helped support safe-haven German Bunds.

Petrides said that if the FTSE 100 fell back below the 5,800 level - seen by technical traders as key to propelling further gains - it could go back down to around 5,725 points.

"I see the market going softer before it can go higher again," said Petrides.

Trading Central said that only a fall below the 5,740 level would dampen underlying bullish sentiment on the FTSE 100.

Securequity sales trader Jawaid Afsar said any pull-back on the FTSE 100 could push it back down to levels of around 5,700 points - around where the 200 simple day moving average level of the index currently lies.

"I am still cautious. Uncertainty still persists in terms of what is happening in Europe," he said.

(Reporting by Sudip Kar-Gupta; Editing by John Stonestreet)

((sudip.kargupta@thomsonreuters.com)(+44 207 542 2773)(Reuters Messaging: sudip.kargupta.thomsonreuters.com@reuters.net))

Keywords: MARKETS BRITAIN STOCKS/OPEN