* Barclays and Standard Chartered fall sharply
* Housebuilders rally after BoE comments
* London Stock Exchange surges on index deal
By Atul Prakash
LONDON, June 26 (Reuters) - Britain's top share index ended flat on Thursday as a rally in housebuilders on Bank of England comments was offset by a fall in banks, including Barclays after it was hit by a lawsuit from the New York Attorney General.
The market was also underpinned by the London Stock Exchange Group, which surged 6.1 percent after unveiling the largest acquisition in its history. It snapped up U.S. group Frank Russell for $2.7 billion to boost its position in the world's largest financial services market.
Housebuilders Persimmon and Barratt Developments both rose about 5 percent after Bank of England Governor Mark Carney announced a cap on home loans and tougher checks, but said the central bank did not aim to curb house prices directly.
"The expectation was that the BoE would be more draconian in the policy measures announced today," Ian Richards, global head of equities strategy at Exane BNP Paribas, said.
"There is nothing here that takes banks beyond where they already are in terms of their underwriting criteria. That's a huge relief for the real estate-sensitive stocks."
The market showed some choppy moves earlier in the session, with the blue-chip FTSE 100 index falling about 0.5 percent after St. Louis Fed President James Bullard reiterated his belief that raising rates by the end of the first quarter of 2015 will be appropriate.
The FTSE 100 ended flat at 6,735.12 points, as gains in housebuilders were counterbalanced by a sharp decline in shares of some major banks.
Standard Chartered fell 4.3 percent after issuing a profit warning. Barclays slumped 6.5 percent after the New York Attorney General filed a securities fraud lawsuit against the bank on charges of giving an unfair edge to its U.S. high-frequency trading clients.
Barclays shares have fallen around 20 percent this year, underperforming the FTSE 100 - flat since the start of 2014 - and a rise of around 1 percent in the STOXX Europe 600 Bank Index.
"The judicial context is becoming a real drag for the European banking sector. There are fears among investors of a contagion effect from the U.S. investigations. After BNP , Barclays, who will be next?" said Alexandre Baradez, chief market analyst at IG France.
The fall in Barclays shares wiped more than 2 billion pounds ($3.3 billion) from the bank's market capitalisation. However, investors remained positive on the broader market's outlook.
Analysts expect the FTSE 100 to hit a record high later in 2014 on expectations of a further strengthening of the British economy, better corporate results and more corporate takeover activity.
A Reuters poll of 61 traders, fund managers and strategists gave a median end-2014 target of 7,000 points for the benchmark FTSE 100 index - up around 4 percent from current levels - and 7,200 points by the middle of 2015. (Additional reporting by Sudip Kar-Gupta in London and Blaise Robinson in Paris; Editing by Andrew Roche)