Britain's FTSE index 100 hits 2-month lows, Admiral slumps

* FTSE 100 index closes 0.3 percent lower

* Admiral shares fall sharply after update

* Aviva (Other OTC: AIVAF - news) drops on concerns about turnaround plan

By Atul Prakash

LONDON, July 9 (Reuters) - Britain's top share index fell for a third straight session to a two-month low on Wednesday, with Admiral sinking after a downbeat trading update and Aviva slipping after outlining its turnaround targets.

Car insurer Admiral slumped 3.3 percent after saying revenues fell in the first half of the year and there was no firm evidence of a return to growth in UK car insurance premiums.

The company said it planned to launch its first ever bond of up to 200 million pounds ($340 million) to diversify its capital base and help prepare to meet Solvency II regulations in 2016.

Oriel Securities repeated its "sell" rating on the stock, while Berenberg said a likely fall in margins was not reflected in current consensus earnings forecasts.

"The market will be surprised that Admiral sees a need to raise debt. With the company forecasting falling margins and showing falling turnover, we believe these earnings forecasts will have to come down," Berenberg analyst Peter Eliot said.

Admiral's trading volume was more than four times of its 90-day daily average, while trading on the FTSE 100 index was near 80 percent of its 90-day average.

Aviva was another big casualty, off 3.6 percent. The UK insurer aims to double the amount of excess cash it generates during the next stage of a turnaround plan, but its shares fell on worries the plan did not go far enough.

The FTSE 100 index closed 0.3 percent lower at 6,718.04 points after climbing to a high of 6,740.82 points earlier in the session. It suffered its biggest one-day percentage fall since March on Tuesday, when it fell 1.25 percent.

"It feels like there's really negative sentiment; people are worried about earnings ... I think we'll see a couple of days of selling," Joe Rundle, head of trading at ETX Capital, said.

However, airlines, which slid on Tuesday following a profit warning from Air France-KLM (Other OTC: AFLYY - news) , recovered some ground as traders deemed the weakness to be overdone.

EasyJet (Other OTC: EJTTF - news) climbed 3.1 percent to top the FTSE 100 leader board, while British Airways owner International Consolidated Airlines Group rose 1.2 percent.

Investors' focus has shifted to the second-quarter earnings season for hints about the market's direction in the near term.

While U.S. aluminium giant Alcoa (NYSE: AA - news) kicked off the reporting season with quarterly results that beat analysts' expectations, investors were doubtful that would be enough to give a big fillip to the FTSE, hovering around multi-year highs.

"The stock market has become vulnerable to more corrections, particularly ahead of the reporting season and at a time when volumes are going to be thin due to summer holidays," Peter Dixon, equity strategist at Commerzbank (Xetra: CBK100 - news) , said.

"You don't want to be too exposed in that kind of environment."

Also weighing on the FTSE 100 were stocks trading without the attraction of their latest dividend, namely Coca-Cola HBC AG and Next. They knocked 1.06 points off the index. (Reporting by Atul Prakash; Editing by Robin Pomeroy)