FTSE sets 2-week closing low, commodity and banking stocks weigh

* Blue-chip FTSE 100 index ends 1.2 pct lower

* Energy, mining, banking shares fall sharply

* Ryanair shares gain on profit jump

By Atul Prakash

LONDON, May 26 (Reuters) - Britain's top share index hit a two-week closing low on Tuesday, with banks slipping after Spanish regional election results put euro zone financials on the back foot, while falling oil and metals prices hit commodity stocks.

Spanish Prime Minister Mariano Rajoy's People's Party suffered heavy losses in local elections on Sunday, throwing his re-election later this year into doubt and opening the door for the anti-austerity Podemos party.

British banks with the most exposure to the euro zone, such as Royal Bank of Scotland (LSE: RBS.L - news) , Barclays (LSE: BARC.L - news) and Lloyds fell by 1.3 to 2.8 percent.

The UK banking index dropped 1.1 percent, but Asia-exposed banks suffered less, with Standard Chartered (Other OTC: SCBFF - news) down 0.8 percent and HSBC losing 0.6 percent.

"The news from Spain indicates that politically the country could be going in the same way as Greece. It does have implications for banks exposed to the euro zone. It's not good news for UK lenders like Barclays and Royal Bank of Scotland," David Battersby, investment manager at Redmayne-Bentley, said.

Oil and gas shares dropped sharply, with Royal Dutch Shell (Xetra: R6C1.DE - news) and BG Group (LSE: BG.L - news) both down 2 percent after oil prices fell due to a stronger dollar and on the possibility that U.S. shale oil producers could increase drilling activity.

The UK energy index, down 1.9 percent, also came under pressure due to a campaign for funds to divest holdings in energy companies.

The mining index fell 1.6 percent after the stronger dollar pushed down copper prices to a three-week low.

Britain's blue-chip FTSE 100 index slid 1.2 percent to 6,948.99 points, the lowest close since May 12, on the first session after a long weekend extended by Monday's public holiday.

Among sharp gainers, Ryanair rose 5.1 percent after it announced profits rose 66 percent in the year to March and said its passenger numbers were almost three times the targeted level on improved service and lower fares. The carrier forecast 10 percent profit growth for this financial year.

Royal Mail (LSE: RMG.L - news) hit a one-year high and closed up 3.6 percent after Cantor Fitzgerald upgraded the stock to "hold" from "sell". (Additional reporting by Alistair Smout; Editing by Jon Boyle and Susan Fenton)