* FTSE 100 falls 0.3 percent
* Profit taking seen in energy and material sectors
* Strong start to the year puts FTSE up against resistance
* Barclays leads banks up after regulatory reprieve
By Alistair Smout
LONDON, Jan 7 (Reuters) - Britain's top share index turned lower on Monday after a rally last week brought it close to two-year highs, as weakness in commodity-related stocks offset gains in banks spurred by a regulatory relaxation in Europe.
London's blue chip index was down 20.02 points, or 0.3 percent, at 6,069.82 by 1141 GMT. The index had posted its highest close since early February 2011 on Friday.
Energy and materials - a broad-based sector including commodity stocks and miners - were the main drag on the index, combining to take over 16 points off the index. Falls in these sectors were in tandem with base metal and oil prices, traders said.
"I suspect it's just a little bit of a pull back from the gains we saw immediately post fiscal cliff, with probably a bit of a rotation going on," Mike Ingram, market analyst at BGC Partners, said.
"With the relatively solid Chinese data through last week as well, it does strike me that there's a bit of profit taking to lock in gains."
Integrated oils had added 3.4 percent in the first three trading days of the year, but fell on the session, tracking crude oil's slip back down to $111 a barrel.
This strength in heavyweight energy stocks has helped UK blue chip equities to gains of around 3 percent since the start of 2013.
But with the FTSE 100 now testing both two-year and three-and-a-half-year highs, the index has run into significant areas of resistance, despite breaking the psychologically important 6,000 mark on the first trading day of the year.
"UK equities are now pretty heavily overbought. Less so the US, but the S&P 500 and the FTSE 100 are up against meaningful resistance levels," analysts at Brewin Dolphin said in a note. The 14-day Relative Strength Index dipped from 72 at the end of last week to 68 during the sessions trading. A level over 70 suggests that an index is overbought.
"The news flow and technical headwinds suggest a pause at these levels - although much will depend upon the earnings season starting properly next week," the note added.
Banks gained 1.1 percent, leading the index, on the back of a decision by global regulators on Sunday to give banks four more years and greater flexibility to build up cash buffers so they can use some of their reserves to help struggling economies grow.
"Overall the relaxation of Basel III liquidity rules will be helpful to UK banks in terms of their ability to lend and their profit generation capability," Shore Capital said in a note.
Barclays led FTSE 100 gainers, rising 3.6 percent and adding over 4.5 points to the index. (Additional reporting by David Brett; Editing by Toby Chopra)