Caution ahead of a key jobs report from the United States weighed on banks and other cyclical stocks, pushing Britain's FTSE 100 .FTSE share index 0.5 percent lower by midsession on Friday.

By 1216 GMT the FTSE 100 was down 28.59 points at 5,284.41, tracking weakness in Asia and on Wall Street overnight after data showed that the U.S. services sector unexpectedly shrank in November.

Volumes on the index were thin as investors stayed on the sidelines ahead of the U.S. non-farm payrolls data at 1330 GMT. Employers are expected to have shed by 130,000 in November, after a 190,000 decline in October.

Soggy is the word, said Peter Dixon, economist at Commerzbank. There's caution, we're within two hours of the payrolls report and investors squared their positions and are awaiting the kick-off in the U.S.

Banks took most points from the index, with Barclays (BARC.L), HSBC (HSBA.L), Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) and Standard Chartered (STAN.L) off 1.2 to 4.1 percent.

The price tag for bailing out UK banks has hit 850 billion pounds ($1.4 trillion) but Britain's spending watchdog says the final cost to taxpayers will not be known for years, according to the independent National Audit Office.

Adding more gloom to the sector, a survey showed that failing commercial property loans pose a growing threat to Britain's banking sector revival, after the sum of debts breaching covenants soared by 75 percent to 18.7 billion pounds in the first half of 2009 

Mining firms were mixed as metals prices edged down and copper prices eased away from 15-month highs hit earlier in the session. Broker Nomura released a bullish note on the sector and raised the target price for several mining firms.

Anglo American (AAL.L), BHP Billiton (BLT.L), Lonmin (LMI.L) and Xstrata (XTA.L) shed 0.8 to 1.4 percent.

Kazakhmys (KAZ.L), Eurasian Natural Resources (ENRC.L), and Rio Tinto (RIO.L) rose 0.5 to 1.3 percent.

BA CLIMBS

British Airways (BAY.L) was among the top blue chip gainers, up 1.2 percent, after Citigroup raised its recommendation to buy from hold and upped the airline's price target based on valuation of a merged entity with Spain's Iberia (IBLA.MC).

Defensive companies also gained ground as cautious investors shifted to stocks perceived as safer bets.

Drugmakers AstraZeneca (AZN.L) and GlaxoSmithKline (GSK.L) were up 1.2 and 0.7 percent respectively, while British American Tobacco (BATS.L) and Imperial Tobacco (IMT.L) gained 0.5 and 0.8 percent respectively.

Food producer AB Foods (ABF.L) added 1.3 percent helped by an encouraging trading statetement. 

But confectioner Cadbury (CBRY.L) lost 0.2 percent. Sources with knowledge of the situation said Kraft Foods (KFT.N) will post its offer document to Cadbury shareholders on Friday, triggering the start of the regulatory two-month period allowed for conducting the takeover battle. 

Other data due later in the session are the U.S. average hourly earnings at 1330 GMT and U.S. October factory orders at 1500 GMT. No significant UK economic data is scheduled for release on Friday. ($1=.6030 pounds)