* FTSE 100 closes down 0.6 pct at 6,730.11 points
* Drop in Lloyds and Schroders hurts financial stocks
* Shell and ITV rise after posting higher profits
By Sudip Kar-Gupta
July 31 Britain's top equity index fell on Thursday as Lloyds Banking Group pulled down financial stocks, and concerns about the impact on Europe of new sanctions on Russia also made traders wary.
The blue-chip FTSE 100 index closed down by 0.6 percent, or 43.33 points, at 6,730.11 points.
Shares in Lloyds, which had risen for the last seven sessions, fell 2.8 percent and weighed on other financial stocks, with the FTSE 350 Banking Index dropping 1.3 percent.
Traders and analysts said that while Lloyds' overall interim results were good, with the part-nationalised bank reporting a 32 percent jump in first-half profits, some of the gloss had been taken off by a rise in bad debts.
"The bad debt charges are the only negative I can see," said Securequity sales trader Jawaid Afsar.
A 4.4 percent fall at Schroders also added to the negative pressure on the financial sector, after the fund management company posted first-half revenue that lagged expectations, even as its assets under management hit a record high.
The FTSE 100 hit a 2014 peak of 6,894.88 points in mid-May which marked its highest level since December 1999. Many traders had expected the FTSE to hit a record high of 7,000 points but its failure to breach the 6,900 mark so far this year has led some traders to book profits above the 6,800 level.
ActivTrades' senior market analyst Carlo de Casa said the FTSE could go down to 6,645-6,685 if it breaks below the 6,700 area.
Afsar said he would not buy the FTSE at current levels, adding that concerns about the economic impact of tougher Western sanctions against Russia were also pegging back stock markets.
The United States and the European Union announced new sanctions against Russia this week in response to the downing of a Malaysian passenger plane on July 17 over eastern Ukraine - where Kiev forces are fighting pro-Russian separatists - which killed 298 people.
Atif Latif, director of trading at Guardian Stockbrokers, was more optimistic that better corporate profits would enable the FTSE to recover and recover from any pullbacks.
Oil major Royal Dutch Shell reported a forecast-beating rise in earnings on Thursday, and TV company ITV also posted higher profits.
"We are pleased that the earnings will allow the market to push back higher from this level," said Latif. (Additional reporting by Alistair Smout; Editing by Ruth Pitchford and Susan Fenton)