The top share index was flat at midday on Monday, as investors absorbed S&P's credit ratings downgrades of nine euro zone countries, including France, with banks weighing on the index and defensives preventing further falls.

London's blue-chip index <.FTSE> was down 0.48 points at 5,636.16 by 11:55 p.m., in choppy trade, but having dropped on Friday on trader talk of the impending downgrades.

Volumes were thin again on Monday as most fund managers and institutions choose to park their cash on the sidelines with so much uncertainty surrounding the economic outlook.

Over the weekend, Standard & Poor's downgrades included stripping France and Austria of their coveted triple-A status but importantly not EU paymaster Germany.

The S&P downgrades last week show that optimism about Europe has lasted as long as most New Years' resolutions, David Miller, Partner at Cheviot Asset Management, which has assets of 3.5 billion pounds.

However, the markets have been expecting downgrades and so I wouldn't expect investors' decisions to alter much because of them.

The downgrades came as negotiations to thwart a Greece default broke up, but Greek Prime Minister Lucas Papademos on Monday was quick to calm market nerves promising a debt swap would be clinched in time.

With euro zone concerns back to the fore, banks <.FTNMX8350>, because of their exposure to debt in the region and its impact on their balance sheet and earnings ability, were under pressure.

Lloyds Banking Group and Royal Bank of Scotland fell 1.9 and 0.2 percent, respectively, albeit having suffered sharper falls on Friday.

Espirito Santo said despite the sector's cheapness -- the European banking index <.SX7E> trades at 0.6 times tangible net asset value -- and central banks flooding the market with cheap cash, it is too early to be outright bulls on the sector.

EARNINGS CONCERNS

Biggest loser on the FTSE 100 was Carnival , down 15.6 percent after the owner of the cruise ship that capsized off Italy's west coast said its 2012 earnings would take a $90 million (58 million pound) hit and added that it anticipated further costs to the business.

Morgan Stanley analysts, which downgraded Carnival, said the accident could have a bigger impact on the company than just the hit to annual earnings.

Broker downgrades hit outsourcer Capita , down 3.3 percent, as BofA Merrill Lynch on the firm to neutral from buy, and Collins Stewart downgraded its rating on Capita to hold from buy, both as pipeline concerns raise growth worries.

Kingfisher , Europe's biggest home improvements retailer, shed 1.5 percent as Citigroup downgraded the firm to neutral from buy, in a cautious review of the European retail sector, which it says faces a sustained period of sub-trend growth as government, corporate and household debt levels adjust following years of credit-fuelled growth.

Earnings worries hit Inmarsat , which dropped 7 percent with traders citing the impact of reports in the U.S. from a key federal agency saying the wireless service run by its partner LightSquared would cause harmful interference to many GPS receivers.

On the upside, defensives featured prominently as doubts over the economic outlook persisted.

Drugmaker Shire rose 1.1 percent as UBS raised its target price, while peer GlaxoSmithKline was up 0.8 percent.

Sweetener and starches maker Tate & Lyle gained 1.0 percent, and luxury goods firm Burberry , liked for its exposure to China, also added 1 percent ahead of its trading update due out on Tuesday.

Meggitt climbed 1.3 percent as UBS upgraded its rating for the British aerospace engineer to neutral from sell, saying it expects the firm to benefit from its American business and the strength of the U.S. dollar.

BT Group extended the recent rally, rising 2.2 percent. The Telecoms provider was double-upgraded by Nomura on Friday after a root-and-branch review of BT's operating outlook.

Smiths Group , whose products range from bomb detectors to medical devices and fuel hoses, rose 0.8 percent as

UBS upped its target price to 1,300 pence from 1,200 pence and repeated its buy rating.

U.S. equity markets will be closed on Monday due to a holiday.

(Writing by David Brett; Editing by Mike Nesbit)