LONDON (Reuters) - Marks & Spencer Plc is reining in investment, slashing costs and stepping up promotions amid signs of mounting pressure on UK consumers as banks tighten lending and house prices fall at the fastest rate for 17 years.

The clothing, food and homewares group, whose international operations include a store in Hamilton, posted a 6.1 percent drop in second-quarter core sales yesterday, its worst performance for over three years, and warned shoppers were "increasingly cautious about their budgets".

But shares in the 114-year-old group, which have plunged over two thirds in value over the past 18 months, jumped as much as 11.3 percent amid hopes the steps being taken will mean profit forecasts will not fall further and its dividend is safe.

"With the worst Christmas for at least 30 years coming up for non-food retailers we wouldn't get carried away," said Pali analyst Nick Bubb. "But the shares have fallen far enough in the short term and M&S is off the hook for the time being."

Britain's shoppers are struggling with higher food and fuel costs, plunging house prices and growing economic uncertainty, and two surveys yesterday showed conditions are getting worse.

The Nationwide building society said house prices fell 12.4 percent in September on the same time last year, the biggest fall since comparable records began in 1991.

Meanwhile a Bank of England survey showed UK banks expect to tighten up on lending to households and businesses further after credit conditions worsened in the third quarter.

M&S chairman Stuart Rose urged governments to stabilise the banking system as a first step to restoring consumer confidence.

A cut in UK interest rates at next Thursday's policy meeting would also be "enormously helpful", he said, adding it would be "a brave person to say we're at the bottom" of the downturn.

Fashion label Ted Baker said it had been hit by growing economic turmoil over the past two weeks, while car parts and bike retailer Halfords also said trading was tough, though it was benefiting from needs-driven purchases, such as for car maintenance.