UK's FTSE falls as broker's downgrade hits easyJet

* FTSE 100 closes down 0.2 pct at 6,743.94 points

* EasyJet (Other OTC: EJTTF - news) hit by Bank of America Merrill Lynch downgrade

* Diageo (LSE: DGE.L - news) rises on SAB Miller bid speculation

* Fresnillo (Other OTC: FNLPF - news) buoyed by firmer gold price

By Sudip Kar-Gupta

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 effect of a broker downgrade.

The blue-chip FTSE 100 index ended down by 0.2 percent, or 13.83 points, at 6,743.94 points - 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 (Other OTC: BACYL - news) 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 also dragged down rival International Consolidated Airlines Group , which fell 3.5 percent.

Richard Griffiths, associate director at Berkeley Futures, expected the FTSE to make little progress in the near term, partly because interest rates are expected to rise soon, which would lead to bigger interest payments for companies and a cooling of the housing market.

"We might just drift a little bit lower on the FTSE from here," he said.

Gold and silver mining company Fresnillo closed up 2 percent, the best FTSE stock in percentage terms, as it benefited from the price of gold staying near a 2-month high.

Drinks group Diageo also bucked the weaker market to rise 1 percent on speculation of a possible tie-up with SAB Miller.

Most traders and investors expect the FTSE 100 to reach a record-high 7,000 points 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 climbed to record highs.

Lex Van Dam, a 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 for now.

"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)