July 25, 2014 / 3:30 PM / in 3 years

Banks outperform Britain's FTSE after RBS's bumper results

* FTSE 100 down 0.2 pct on the day, up for the week

* RBS jumps 11 pct as UK upturn boosts results

* BSkyB falls 5 pct on news of 4.9 bln pound acquisition

* GSK pegs back FTSE on corruption allegations

By Francesco Canepa

LONDON, July 25 (Reuters) - British lenders who focus on the domestic market outperformed a slightly negative FTSE 100 index on Friday after strong results from Royal Bank of Scotland and solid economic growth data.

The FTSE, down 0.2 percent on the day but still up 0.8 percent on the week, succumbed to profit taking in late trade as Russia accused Ukraine of having shelled across the border, reviving investor concerns about the conflict there.

BSkyB was the heaviest faller on the FTSE, sliding 5 percent, after the company agreed to pay 4.9 billion pounds ($8.3 billion) in cash to buy Rupert Murdoch’s pay-TV assets in Germany and Italy, partly financing the deal by the placing of BSkyB shares.

Shares in RBS, however, surged 11.5 percent, on track for their biggest rise in four years, after the bank posted a surprise pretax profit for the second quarter, citing an economic upturn that allowed it to write back losses that had been booked on bad loans.

Fellow British-focused lenders Barclays and Lloyds Banking Group, which are due to report next week, were up around 2.2 percent and 1.5 percent, respectively.

“Credit quality keeps improving, especially in distressed assets such as commercial real estate,” said Espirito Santo analyst Shailesh Raikundlia, who has a “neutral” recommendation on the stock.

“In general, the credit environment is pretty benign and that should come through in banks’ results.”

The positive mood on the British economy was underpinned by data showing economic output in the second quarter finally topped levels seen before the financial crisis struck six years ago.

“The UK is having the best of times,” said Gerard Lane, a strategist at Shore Capital.

Lane said he expected the pace of economic growth in Britain to slow versus the rest of the world next year, however, owing to a tighter monetary policy by the bank of England and lower public spending after a general election due to be held in May.

Financial shares added 11 points to the FTSE 100, which was down 13.55 points at 6,807.91 points at 1452 GMT.

Other gainers that focus on the domestic market included British grocer J Sainsbury, up 1.6 percent, with traders citing a Daily Mail report of fresh bid interest from Qatari investors. The company declined to comment.

Among mid-caps, shares in two of Britain’s biggest construction companies, Balfour Beatty and Carillion , rallied after they confirmed that they were in early talks on a possible 3 billion pound ($5 billion) merger.

Network operator Vodafone added a further 5.3 points to the FTSE as it rose 2.6 percent after saying its performance had begun to stabilise in several European markets.

Pegging back the FTSE on Friday were export-oriented companies such as heavyweight drugs firm GlaxoSmithKline and fashion brand Burberry.

GSK knocked 8.3 points off the index as it faced new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email.

Burberry fell 1.8 percent after French luxury goods group LVMH posted below-forecast second-quarter sales and profits, hit by a drop in demand from China. (Additional reporting by Lionel Laurent; Editing by Susan Fenton)

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