Weak banks, miners, oils pull FTSE down 0.4 pct

* Banks fall; Barclays buoyed by upgrade

* Miners, oils weak with commodity prices

* Defensive issues back in favour led by pharma

By Jon Hopkins

LONDON, Aug 27 (Reuters) - Britain's leading share index shed 0.4 percent on Thursday pulled back by weakness in banks, miners, and oils as investors' risk appetite waned ahead of a long holiday weekend, with defensive issues seeing demand.

London markets will be closed on Monday for a bank holiday.

At the close, the FTSE 100 index .FTSE was 21.23 points lower at 4,869.35, having ended 26.22 points lower on Wednesday.

"We seem to have lost a bit of momentum really, despite some fairly good news, with data not too bad. But it just doesn't seem enough to carry the market higher," said David Morrison, a market strategist at GFT Global.

"We had been looking for a bit of a pullback. It certainly feels like the market wants to see some consolidation before moving higher, and that seems to be happening now."

The FTSE has rallied 42 percent since hitting an all-time low in March and is up 10 percent so far this year thanks to brightening economic data and improving corporate earnings.

Banks were the worst sector performers, giving back recent gains. Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L), Standard Chartered (STAN.L) and HSBC Holdings (HSBA.L) lost between 0.8 and 3.5 percent.

Lloyds may sell parts of its business to reduce reliance on Britain's government-backed asset protection scheme, shareholders familiar with the bank's thinking said. [nLR95833]

Barclays (BARC.L) bucked the trend, adding 1.6 percent helped by an upgrade to "outperform" by Keefe, Bruyette & Woods.

Heavyweight miners, which have been major players in the recovery of the British market were hit by profit-taking, with Xstrata (XTA.L), Lonmin (LMI.L), Eurasian Natural Resources (ENRC.L) and Vedanta Resources (VED.L) down 3.4 to 4.1 percent.

Kazakhmys (KAZ.L) was an exception, gaining 2.1 percent after the copper producer posted a better-than-expected 28 percent fall in first-half earnings per share and said it should beat its full-year output target. [ID:nL019222].

Oil majors reversed as crude CLc1 dropped back to $70 a barrel, with BP (BP.L), Royal Dutch Shell (RDSa.L), BG Group (BG.L) and Cairn Energy (CNE.L) losing 0.2 to 0.4 percent.

Defence giant BAE Systems (BAES.L) was the top blue-chip casualty, shedding 5.6 percent after news it failed to win a follow-on contract for the production of medium tactical vehicles for the U.S. Department of Defense. [ID:nLR257392]

Oil services and engineering group Amec (AMEC.L) lost 4.0 percent as investors locked in profits after it reported a 25 percent increase in first-half profit. [ID:nLR183660]

Diageo (DGE.L), the world's biggest spirits group, fell 4.1 percent after cutting its profit target this year due to concerns about the strength of any recovery. [ID:nLQ209171]

DEFENSIVES DELINEATED

The top performing blue-chips sector was pharmaceuticals as defensive factors came back in to play, with GlaxoSmithKline (GSK.L) and AstraZeneca (AZN.L) up 1.0 and 0.9 percent, respectively.

Smith & Nephew (SN.L) was the top FTSE 100 riser, ahead 4.6 percent after comment in the Lex column in the Financial Times on the effect of the ageing "baby boomer" generation on the medical device sector.

Utilities also found good support, with Centrica (CNA.L), International Power (IPR.L), and Scottish & Southern Energy (SSE.L) up 1.2 to 3.0 percent.

U.S. blue chips .DJI were 0.6 percent lower by London's close after mixed data. The second reading of U.S. gross domestic product (GDP) was unrevised at -1.0 percent, less than expected, while initial weekly jobless claims fell, but not as much as forecast.

British economic data was also mixed. A CBI report showed retail sales fell faster than expected in August after a sharp drop in durable household goods. [ID:nLR307097]

Meanwhile, house prices rose for the fourth month running and at their fastest monthly rate in 2-1/2 years in August, the Nationwide Building Society said. [ID:nLAG003687]

UK fund managers have pared back their exposure to equities in August as mounting evidence of global economic recovery was tempered by medium-term growth concerns, according to a Reuters poll. For full details, double click on [nLQ326642] (Editing by Karen Foster)