Britain's blue-chip index was slightly lower at midday on Friday as an extended rally in the banking sector was offset by losses among mining companies in response to signs of a slowdown in manufacturing activity in China, the world's largest consumer of metals.

The FTSE 100 <.FTSE> index was 0.1 percent lower at 5,733.84 points at 12:00 p.m., pausing after a four-session rally in which on Thursday it hit its highest close since August 1.

Miners followed metals prices into negative territory after China manufacturing data showed a sluggish start to the year, although analysts said the weak data could trigger some policy easing by Beijing to support growth.

This morning's fall in miners should be seen as a brief pullback within a solid uptrend, said Ed Woolfitt, head of trading at Galvan. The 'bad' Chinese growth data combined with lower than expected inflation data leave plenty of scope for Chinese stimulus - very good news for commodity-based currencies and stocks.

The industrial engineering <.FTNMX2750> and oil & gas sectors <.FTNMX2750>, which depend on economic activity, were also weak. Weir was the biggest casualty on worries surrounding growth rates in the shale gas industry, in which the British group has a significant presence.


UK banks <.FTNMX8350> were poised to chalk up a ninth consecutive session of gains, nearing highs last seen in October as fears surrounding the euro zone debt crisis eased after the European Central Bank's injection of nearly 500 billion euros in three-year funds last month.

A sign of the improved sentiment in the euro block came at bond auctions on Thursday, as France and Spain secured healthy demand for their bonds despite credit rating downgrades by Standard & Poor's.

The reason for the rally is a perception that the ECB liquidity drive is going to save the world, Edward Firth, a banking analyst at Macquarie said.

Personally I'm a bit sceptical on that: if you're going to fund euro zone governments through banks you effectively have to meet the banks' funding requirements and as well as the government's funding requirements: if you tot up the total it comes to over 1.5 trillion for 2012.

Firth said another reason for caution was the uncertain outcome of Greece's debt swap talks, which could see the country face a messy default if a deal is not reached.

(Editing by Jane Merriman)