Top shares eased back from last week's 2012 highs on Monday, as weakness in banks after recent strong gains overshadowed a late-session recovery from miners, with investors awaiting the next catalyst to drive the market.

The benchmark FTSE 100 index <.FTSE> closed down 4.47 points, or 0.1 percent, at 5,961.11.

Banks, which spearheaded the FTSE 100's recent jolt higher in the aftermath of last Tuesday's U.S. bank stress tests, went into retreat after London-listed lenders <.FTNMX8350> neared overbought levels, according to their relative strength index.

Banks last week outperformed the other major sector indexes on the FTSE 100 by a considerable margin, advancing 5.2 percent.

Sentiment in the sector was hurt as KPMG said banks faced more pressure on profits, and Barclays Capital forecast investment banking earnings to be down 15-20 percent this year.

Mining stocks <.FTNMX1770> clawed back losses from earlier in the day to end in positive territory, tracking copper prices higher, as recent encouraging U.S. economic data overshadowed fears about demand from top consumer China, for now.

Hurting the miners, the key property sector in China has cooled. Its home prices are down in February from January for a fifth consecutive month, and are expected to continue heading south in coming months.

The demand picture for global commodities worries me and does point to a slowing Chinese economy, which I find more significant than improving data from the U.S., so I remain very cautious, said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.

Uncertainty over the outlook for China, in fact, prompted a downgrade on miners from JPMorgan - to neutral from overweight - with the bank urging some profit taking after the sector's outperformance in the year to date.

Clearly there will be rallies driven by the news of Chinese policy easing, but we would use these as opportunities to reduce into strength, JP Morgan said.

A sharp slowdown in the Chinese economy could turn out to be a positive for European equities broadly speaking, argued Societe Generale, highlighting that a fall in the price of commodities would lower raw material costs in developed markets.

If China's GDP growth falls below 7 percent per annum - a scenario that SocGen describes as a hard landing - the price of commodities, especially oil, would also decline, enhancing household purchasing power in the West, the bank said.

It has been a fairly quiet European session with investors mulling the next move after the strong gains of recent weeks, Michael Hewson, market analyst at CMC Markets, said.

IMF chief Lagarde's weekend warning about the risks to the global economy of rising oil prices has seen the market adopt a wait and see attitude today, while a lack of new economic drivers has seen volumes slip back.

NATIONAL GRID WANES

National Grid was a significant faller, off 1.9 percent, after BofA Merrill Lynch downgraded its rating on the energy distributor to neutral, partly on valuation grounds, in a broadly bearish note on pan-European utilities.

BofA Merrill Lynch said National Grid's shares, which recently broke through its 640 pence price objective, helped by its defensive characteristics and emerging clarity on regulation and dividend safety, may mark time until the end of the year.

The bank said progress in the RIIO (a new system which UK regulator Ofgem will implement to render Britain's energy network more sustainable) review has been encouraging so far, and it still bets on an acceptable final outcome in December.

Nevertheless, the initial proposals due in July are unlikely to represent the regulator's best offer, and we cannot preclude some uncertainty.

BT Group was a good gainer, up 0.8 percent, after the Sunday Times reported the telecoms firm was preparing to put up to 1.5 billion pounds into its pension fund in an effort to tackle a huge shortfall - and clinch a multi-million-pound tax credit.

Oriel Securities estimated cash benefits of a large, early top-up payment are a 22 million pounds early payment saving and 6 million pounds savings because the UK corporate tax rate is set to reduce from 26 percent in 2011/12 to 25 percent in 2012/13.

If this prediction comes true, we believe it will be a clear incremental positive for BT's share price, Oriel said.

(Additional reporting by David Brett)

(Editing by William Hardy)