UPDATE 1-UK's FTSE slips as broker downgrade hits easyJet
* FTSE 100 slips 0.3 percent
* EasyJet hit by Bank of America Merrill Lynch downgrade
* Diageo rises on SAB Miller bid speculation
LONDON, June 30 (Reuters) - Britain's top equity index slipped lower on Monday, with budget airline easyJet the worst-performing stock as it felt the impact of a broker downgrade.
The blue-chip FTSE 100 index was down by 0.3 percent to 6,737.75 points in late trading - down more than 2 percent from its 2014 peak of 6,894.88 in May, which marked its highest level since December 1999.
EasyJet fell 6.4 percent, making it the worst-performing FTSE 100 stock in percentage terms, after Bank of America Merrill Lynch cut its rating on the stock to "underperform" from "neutral."
Bank of America Merrill Lynch said earnings headwinds were expected to put pressure on easyJet's shares, and easyJet's fall also dragged down rival International Consolidated Airlines Group, which fell 3.9 percent.
Richard Griffiths, associate director at Berkeley Futures, expected the FTSE to make little progress in the near-term, due partly to the likelihood of higher interest rates soon, which would lead to bigger interest payments for corporates and a cooling of the housing market.
"We might just drift a little bit lower on the FTSE from here," he said.
Drinks group Diageo bucked the weaker market to rise 1.4 percent on speculation of a possible tie-up with SAB Miller , while media group BSkyB rose 1.3 percent after announcing a share buyback.
Most traders and investors expect the FTSE 100 to hit a record high of 7,000 points later in 2014, on expectations of a further strengthening in the British economy, better corporate results and more corporate takeover activity.
However, the FTSE has failed to break through the 6,900 barrier so far, and has underperformed rivals such as Germany's DAX and the U.S. S&P, which have both hit record highs.
Lex Van Dam, hedge fund manager at Hampstead Capital, said that a rise in sterling, which would hit exporters, and the prospect of higher rates meant he was in no hurry to place big bets on the FTSE at present.
"I would not be in a rush to buy, with the next move in rates up and a strong sterling hurting exporters," he said. (Additional reporting by Tricia Wright; Editing by Mark Trevelyan)