* FTSE 100 down 1.2%, FTSE 250 drops 2.3%
* UK insurers down after EU asks peers to suspend dividend
* London bus operators gain as government throws lifeline
* BP, Royal Dutch Shell drop despite gaining oil prices (Updates to market close)
April 3 (Reuters) - Britain's FTSE 100 share index logged its fifth weekly decline in six on Friday, with insurers leading losses after a European Union regulator urged them to halt shareholder payouts, while oil stocks retreated after a recent surge.
The blue-chip index closed down 1.2%, and mid-cap shares ended 2.3% lower.
Legal & General, Aviva and Prudential fell by between 3% and 10% after the regulator asked insurers and reinsurers in the EU to suspend dividends and share buybacks, and consider postponing bonuses as a buffer against possible losses due to the coronavirus pandemic.
British insurers still need to follow EU insurance regulations during the Brexit transition period. Legal & General said it still planned to pay a 2019 dividend.
"The action from the European Central Bank and the Bank of England in relation to bank dividend should have been a warning for insurers," CMC Markets analyst David Madden said. "In this day and age, you want to make sure that you're as liquid as possible."
With many companies announcing freezes or cuts in their payout policies, notably in the banking sector, Barclays on Wednesday forecast that dividend paid by companies listed on the pan-European STOXX 600 index will fall by about 40% this year.
The FTSE 350 life insurance index is down 40% this year, compared with a 28% drop in the blue-chip index, also amid concerns over potential large claims due to the coronavirus outbreak.
Both the FTSE 100 and the FTSE Mid 250 logged weekly losses as data from across the world confirmed investor fears of a sharp economic slump driven by the outbreak.
A survey showed Britain's services and manufacturing firms suffered a record downturn in March.
After Thursday's numbers showed another record surge in U.S. weekly jobless claims, investors were less shocked to see the U.S. economy shedding 701,000 jobs in March.
Shares in BP and Royal Dutch Shell fell more than 4%, after rallying on Thursday, although oil prices climbed further on hopes of a huge global supply cut deal between Saudi Arabia and Russia.
Information services provider Ascential tumbled 14.2% as it scrapped its 2019 dividend and said it was commercially not viable to run the Cannes Lions Festival this year.