FTSE posts biggest one-day drop in 16 months on economic fears

* FTSE 100 index ends down 2.8 pct, hits 15-month low

* Shire (Xetra: S7E.DE - news) slumps as AbbVie (Xetra: 4AB.DE - news) says reconsiders takeover plan

* UK pharma index posts biggest intraday drop in 6 years

By Atul Prakash

LONDON, Oct 15 (Reuters) - Britain's top share index hit a 15-month low on Wednesday, with cyclical sectors such as commodities and banks falling on concerns about the global economy and drugmakers slipping on AbbVie's decision to reconsider its takeover bid for Shire.

The blue-chip FTSE 100 index extended losses after data showed U.S. retail sales fell in September and prices paid by businesses also declined. The FTSE 100 ended 2.8 percent lower at 6,211.64 points, the biggest one-day percentage decline in 16 months and the lowest level since the middle of 2013.

"The stock market is in a fear mode at the moment on worries about global growth conditions and normalisation of U.S. interest rates," said Henk Potts, director of global research at Barclays (LSE: BARC.L - news) .

"But if the sell-off continues, it could prove to be a strong entry point into an asset class that we think will continue to outperform."

Cyclical sectors, which tend to be more sensitive to economic conditions, were the worst hit. The UK banking , mining and energy indexes were down 2.4 to 3.1 percent.

Drugmakers, however, were the biggest sectoral decliners, led lower by Shire. Shares (Berlin: DI6.BE - news) in the drugmaker plummeted 21.9 percent after AbbVie said it was reassessing its $55 billion takeover plan following the U.S. government's recent move to curb deals designed to reduce tax.

The FTSE 350 Pharmaceuticals & Biotechnology index fell 6.6 percent, the index's biggest intraday percentage fall in six years.

"It's bad news for the sector, which is struggling to find topline growth and the mergers and acquisitions activity was clearly an area of focus," John B Smith, senior fund manager at Brown Shipley, said.

"A bid is still possible in the long term, but you are not going to see the higher premiums."

Shire, the top decliner, took the most points off the blue-chip FTSE 100 index. It suffered its worst one-day percentage drop in its share price since February 2002.

Shire's larger rival AstraZeneca (NYSE: AZN - news) , which had rebuffed its own takeover by Pfizer (NYSE: PFE - news) , fell 3.2 percent while knee and hip replacement maker Smith & Nephew (LSE: SN.L - news) , which had also been touted as a target, fell 5.4 percent.

One hedge fund with a position in Shire said it got caught out by AbbVie's change of heart, which came weeks after the U.S. government moved to curb deals designed to reduce tax.

"We just don't know what's happened ... They have been very keen to do the deal," said the hedge fund manager, who declined to be named. "So there is a disconnect between the tone so far and what we see today. Figuring out where that disconnect comes from is key for us."

Other sharp individual movers included Royal Mail (LSE: RMG.L - news) , which rose 1.9 percent, the top FTSE 100 gainer, after saying it was selling one of its old central London mail centres to a hotel and real estate company for 111 million pounds ($180 million) in cash. (Additional reporting by Sudip Kar-Gupta; Editing by Raissa Kasolowsky/Ruth Pitchford)