Britain's FTSE 100 records best week in 3 months

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* FTSE 100 closes flat, posts gains for the week

* blue-chip index up around 10 pct so far in 2016

* Rally in housebuilders offset weaker banks

By Atul Prakash and Sudip Kar-Gupta

LONDON, Sept 23 (Reuters) - Britain's top share index completed its best week in almost three months on Friday, holding on to recent gains as a rally in housebuilders on the back of some positive broker comments offset weaker banks.

Persimmon (Frankfurt: 882058 - news) rose 2.3 percent after Liberum upgraded the stock to "buy" and raised its price targets for the sector, saying sales had picked up and risks had faded.

Credit Suisse (LSE: 0QP5.L - news) also raised its volume forecasts for the British housing market, following resilience in data following the Brexit vote in June.

"We reiterate our conviction call of being "long" the regional and "short" the high-end London housing market. Consequently, we reiterate our 'outperform' rating on Bellway (Stuttgart: 41B.SG - news) and 'underperform' rating on Berkeley Group," Credit Suisse said in a note.

Shares (Berlin: DI6.BE - news) in Bellway (Frankfurt: 869646 - news) and Barratt Developments (Frankfurt: 859551 - news) were up 3.4 percent and 2.1 percent respectively, while Berkeley gained 0.9 percent.

The blue-chip FTSE 100 index, which had risen for the last four sessions in a row to approach its 2016 peak of 6,955 points, finished 0.03 percent lower at 6,909.43 points.

Banks extended Thursday's losses, with the UK banking index down 1 percent, after the U.S. Federal Reserve left rates unchanged this week. Standard Chartered (HKSE: 2888.HK - news) , Royal Bank of Scotland and Lloyds Banking Group (Other OTC: LLOBF - news) all fell about 2 percent.

"Banks remain pressured by the prospect of lower rates for longer and global growth uncertainty," Mike van Dulken, head of research at Accendo Markets, said.

However, the Fed's inaction helped stocks in several other sectors and the FTSE 100 index closed 3 percent higher this week. That was its best weekly performance since a recovery in the last week of June following the initial Brexit sell-off.

U.S. rates may still rise in December in the United States, but they remain at record lows in Britain and the euro zone, hitting returns on bonds and cash and driving investors towards the better returns available from the stock market.

The FTSE 100 is up more than 10 percent so far in 2016, after a Bank of England rate cut helped the FTSE to recover from Britain's vote in June to quit the European Union.

"My long-term view is the market will continue to push on. We remain a buyer of dips, and I expect the FTSE to finish the year strongly," said Roderic Owen-Thomas, director at London-based trading firm Mayfair Capital Limited.

Among other sharp movers, Polymetal was the worst-performing FTSE 100 stock, sliding 7.4 percent after two of its private equity owners announced the sale of 6 percent of the company. (Editing by Keith Weir)