easyJet leads Britain's FTSE lower as global bond rout resumes

* Appetite for equities knocked by global bond sell-off

* Airline easyJet sees disappointing Q3 outlook

By Alistair Smout

EDINBURGH, May 12 (Reuters) - Britain's top share index fell sharply on Monday, led lower by a slump in easyJet, with the appetite for equities knocked by a global bond sell-off, ensuring that optimism after a decisive British election result was short-lived.

Britain's FTSE 100 was down 64.64 points, or 0.9 percent, at 6,965.21, but remained up 1 percent since the start of Friday, when markets rallied after an unexpected Conservative majority in the election.

Although the market remains well clear of recent lows, focus has switched away from domestic politics, with markets across Europe all more than a percent lower as a global bond sell-off resumed.

The sell-off has surprised investors and puzzled analysts since the end of April. While analysts have said the sell-off was partly triggered by an uptick in inflation expectations, yields continue to rise despite oil prices dipping and renewed worries over Greece.

"This is having a major impact on the other asset classes, and the volatility spills over into equity futures ... Risk managers are looking at decreasing their levels of risk, given the moves," Ioan Smith, managing director of KCG Europe, said.

"When you've got this sort of volatility in something like the Bund, which is considered a safe haven asset, you have to question the functioning of the market more broadly."

The sell-off on the FTSE was broad based, with 92 out of 100 stocks in negative territory.

Leading the fallers was easyJet after the low-cost airline struck a cautious tone over outlook, dropping 7.8 percent.

The airline warned it would take a hit from air traffic strikes in April, and said that revenue per seat would fall in the third quarter despite turning a profit in the weaker winter seasons for the first time.

"There are pluses and minuses in the statement but we are trimming our full year PBT forecast from 691 million pounds to 660 million pounds, primarily to reflect 25 million pounds of disruption costs in April (French air traffic control)," analysts at Numis write in a note.

"We would expect the share to give up a little of its recent performance today, but strategically we believe that easyJet continues to be well placed for growth."

(Reporting by Alistair Smout)