Britain's FTSE falls, led lower by Johnson Matthey

* FTSE 100 down 1.3 pct

* Johnson Matthey (LSE: JMAT.L - news) drops despite increased profits

* UBS (NYSEArca: FBGX - news) cuts its full-year target for the index

* Airline easyJet bucks trend after traffic update (Updates prices, adds quotes)

By Liisa Tuhkanen and Alistair Smout

LONDON, June 4 (Reuters) - Britain's top share index fell on Thursday, led lower by specialty chemicals maker Johnson Matthey and ex-dividend stocks amid a broad sell-off in equities as bond yields ticked higher.

Johnson Matthey, the world's largest maker of auto catalysts, fell 4.6 percent, among the top FTSE 100 fallers.

The company posted a small rise in annual profit helped by higher sales of catalysts in Europe, but investors worried about an unexpectedly sharp increase in debt caused by a rise in working capital and the weaker precious metals prices, which have hit its metals division in the last year.

"Rising cars sales in Europe and tighter regulation on fuel discharges drove profits higher, but the dreary outlook for the metal business has put pressure on the stock," David Madden, a market analyst at IG (LSE: IGG.L - news) , said in a note.

Britain's FTSE 100 was down 1.3 percent at 6,857.75 points by 1105 GMT.

"If we look across developed markets, sell-off in equities is pretty broad. To me, it's probably more to do with monetary policy than anything else," said James Butterfill, global equity strategist at Coutts.

The European Central Bank's insistence on Wednesday that there was no need to adjust monetary policy in the face of volatility rattled financial markets. (GVD/EUR FRX/)

Volatility on the FTSE 100, a crude measure of investor fear, rose 8.3 percent to near a one-month high, as investors sought to protect against swings in the market.

Many of the top fallers traded without the attraction of their latest dividend payouts, with National Grid (LSE: NG.L - news) , WPP and AB Foods falling between 3 and 5 percent.

Utilities came under pressure from a sell-off in bonds, which reduces the relative appeal of high-yielding stocks and raises debt costs for indebted companies.

Commodity stocks were also weaker, with gold pinned near a three-year low and further downside to metal prices seen.

UBS trimmed its full year target for the FTSE 100 to 7,200 points from 7,300, saying weakness in commodity stocks would hinder performance, even as it raised its target price for the STOXX Europe 600.

"We see FTSE 100 earnings falling 8 percent this year (in the main, due to the fall in commodity prices), but rebounding 10 percent in 2016," analysts at UBS said in a note.

The sell-off on the FTSE was broad-based, with all sectors in negative territory.

One of few gainers, budget airline easyJet rose 0.9 percent, after reporting traffic figures that traders said were solid.

(Editing by Tom Heneghan)