Banking bounce keeps Britain's FTSE steady

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* FTSE 100 up 0.1 pct

* Banks boosted by rate U.S. rate hike hopes, tax plan

* Dollar rise weighs on consumer stocks

* Balfour Beatty (Other OTC: BAFBF - news) leads mid caps after upgrade

By Kit Rees

LONDON, Sept 28 (Reuters) - Banks were a bright spot on Britain's top share index on Thursday, helped by hopes of U.S. tax reforms and rate hikes, though drops among dollar-earning consumer stocks weighed. The blue chip FTSE 100 index was up 0.1 percent at 7,318.67 points by 0908 GMT, in line with a broadly flat European market.

British banks rose 0.7 percent, building on the previous session's advance as the sector was supported by hawkish rhetoric from the U.S. Federal Reserve earlier in the week, as well as President Donald Trump's plan to reform tax.

Banks have struggled in an environment of low interest rates, which puts pressure on their margins. Analysts also cited comments from Bank of England Chief Economist Andy Haldane who said late on Wednesday that any increase in interest rates would be good news for Britain's economy.

Shares (Berlin: DI6.BE - news) in Barclays (LSE: BARC.L - news) were up 2.5 percent while Lloyds and HSBC also advanced. So far the sector has gained around 7 percent this year.

Some analysts, however, were more cautious about Trump's tax plans.

"It's good news, but the markets aren't exactly flying on it because we've been burnt before on Trump reforms ... not exactly following through," said Mike van Dulken, head of research at Accendo Markets, referring to the Republicans' healthcare bill which collapsed again in the Senate on Tuesday.

The proposed U.S. tax reforms sent the dollar higher, a hindrance for internationally-exposed consumer stocks.

Shares in heavyweights such as tobacco stocks British American Tobacco and Imperial Brands (LSE: IMB.L - news) declined 1.1 percent and 2.5 percent respectively, while household products maker Reckitt Benckiser (Xetra: A0M1W6 - news) fell 1 percent.

Gains among industrial stocks buoyed British mid caps , which gained 0.1 percent.

Infrastructure firm Balfour Beatty was among the top gainers, jumping 4.7 percent and touching a one-month high after broker Peel Hunt upgraded the stock to "buy" from "add", citing the company's Investments division as a key driver of value.

Restaurant Group (Other OTC: RSTGF - news) shares dropped 4 percent, however, after HSBC reduced their target price for the stock.

"Management are making the changes to turn the group around. However, as cost pressures, supply and market promotional activities continue to grow, a quick fix is unlikely," analysts at HSBC said in a note.

(Reporting by Kit Rees)