UPDATE 2-UK stocks fall as bank stocks weigh; factory activity jumps

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* UK factory activity expands at fastest rate since 1994
* Weaker pound boosts heavyweight consumer staple companies
* FTSE 100 down 0.7%, FTSE 250 down 0.6%

(Updates to market close)
By Devik Jain and Shivani Kumaresan
May 4 (Reuters) - British shares were subdued on Tuesday as
a drop in bond yields across Europe dragged financials stocks
down, while data showed manufacturing activity grew at its
fastest pace since 1994 as businesses tried to make up for lost
ground during the pandemic.
The blue-chip FTSE 100 index .FTSE fell 0.7%, with bank
stocks, including HSBC Holdings HSBA.L , Barclays PLC BARC.L
and Standard Chartered Plc STAN.L posing the biggest drag on
the index.
Heavyweight oil majors BP BP.L and Royal Dutch Shell
RDSa.L gained 2.3% and 1.1% respectively. The stocks provided
the biggest boost on optimism about higher demand as economies
reopen. O/R
"People are switching a bit out of stocks into bonds after
the U.S. Treasury secretary and Fed officials dampened down
inflation fears," said Keith Temperton, equity sales trader at
Forte Securities.
"The big thing we are waiting for this week is the U.S.
jobless numbers. That's going to be the big key to power the
market for the whole of May."
Euro zone bond yields fell on Tuesday, away from recent
multi-month highs as volatility in stocks boosted demand for
safe havens, giving bonds a respite from a recent heavy selloff.
The domestically focused mid-cap FTSE 250 index .FTMC
shed 0.6%.
The FTSE 100 has gained more than 7.4% year-to-date as
investors flocked to energy and materials stocks that are seen
benefiting the most from a stronger economic recovery due to
speedy COVID-19 vaccine rollouts and government policy support.
Meanwhile, data showed April PMI rose to 60.9 in April. All
eyes now are on the Bank of England policy meeting on May 6,
where it will likely ease its foot off the stimulus pedal and
reduce its pace of bond purchases. Among other stocks, dollar-earning large companies Diageo
DGE.L , Imperial Brands IMB.L and British American Tobacco
BATS.L gained as the pound softened. GBP=