By Sarah Turner

LONDON (Dow Jones)--Banks led losses for British stocks on Thursday, paring sharp gains made in the previous session, with Standard Chartered shares under pressure after updating investors.

Standard Chartered shares fell 2.3% after it said that it believes it's too early to forecast a sustained recovery and remains cautious on the outlook.

The lender - which concentrates on lending to customers in Asia -- said that that there has been a moderate deterioration in consumer banking loan impairments, primarily due to worsening conditions in India, Pakistan and the United Arab Emirates.

Other banks were also under pressure, with another Asia-focused bank HSBC Holdings (HBC) down 2.4% and Barclays (BCS) down 0.4%.

Royal Bank of Scotland (RBS), however, rose 3.4% after Cazenove upgraded it to outperform from underperform, saying that it expects the company's shares to react positively to news on restructuring, the U.K. government's asset-protection program, as well as disposals.

"The absolute share-price performance will in large part be driven by the level of economic activity, but relative to its peers we expect RBS to outperform given its lower risk strategy," said the broker. "With the share price now trading around tangible book value, we believe the valuation reflects investor confidence in the capital position."

Overall, the U.K. FTSE 100 index gave up 0.6% to close at 4,252.57. Other European shares were also weak.

The FTSE 100 index ended 1.2% higher on Wednesday, helped by gains for banks and metal extractors ahead of a decision on interest rates from the U.S. Federal Reserve.

The Fed kept rates on hold, as widely expected.

Metals stocks were paring also some gains on Thursday, with BHP Billiton (BHP) and Lonmin shares down 2.2%.

In the oil sector, BP (BP) shares edged down 0.2% after it became the second major oil company to turn to a telecom-industry executive to be chairman, naming Ericsson CEO Carl-Henric Svanberg to the position.

BP said that Svanberg will move to London and succeed Peter Sutherland, who will retire at year's end.

Merrill Lynch lifted insurer Standard Life , up 2.4%, to buy from neutral, saying the shares have underperformed the market by nearly 30% since the March rally, making for an "excellent" entry point for investors.

The investment bank said Standard Life is less exposed to market conditions and risks, plus it has a balance sheet that isn't overly encumbered with intangibles. It also has one of the highest statutory surplus levels and the lowest level of asset gearing to this surplus, the investment bank said.

Shares of electronic goods retailer DSG International pulled back from early gains to trade flat in the afternoon.

Its net loss for the year ending May 2 narrowed to 219.4 million pounds ($360.1 million) from 260.8 million pounds, while revenue slipped 1% to 8.36 billion pounds.

DSG said it expects the weak conditions to continue through the coming year in many of its markets. It will focus on managing costs, margins, stock and cash flow, adding that it remains confident of its medium-term target of achieving a 3% to 4% return on sales.

 
   Services Desk; Dow Jones Newswires; +44-20-7842-9319/9274