* FTSE 100 index steadies in afternoon trading
* Housebuilders rally after BoE comments
* London Stock Exchange surges on index deal
* Barclays, Standard Chartered fall sharply
By Atul Prakash
LONDON, June 26 (Reuters) - Britain’s top share index was 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 6.3 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 rose more than 5.5 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.
“Carney’s comments are generally being perceived as less stringent and more dovish than investors had expected,” James Butterfill, global equity strategist at Coutts, said.
“Measures such as direct controls to curb lending growth were not addressed and consequently homebuilders, which had been pricing more stringent measures, are rallying.”
Gains in housebuilders were counterbalanced by a sharp decline in shares of some major banks. The blue-chip FTSE 100 index was flat at 6,732.44 points by 1233 GMT.
Standard Chartered slipped 4 percent after issuing a profit warning. Barclays slumped 5.5 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 - which is 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 out about 2 billion pounds ($3.3 billion) from the bank’s total market capitalisation.
However, investors remained positive on the broader market’s outlook.
Analysts 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. (Additional reporting by Sudip Kar-Gupta in London and Blaise Robinson in Paris; Editing by Andrew Heavens and Susan Fenton)