Britain's FTSE led lower by telecoms and supermarket operators

* FTSE 100 steadies, down 0.3 pct

* Miners lead gainers on upgrades, buoyed by metals prices

* Telecommunications hit by blocked deal in Europe

* Morrison falls on target price cut (Adds detail, quotes)

By Kit Rees

Sept 11 (Reuters) - Britain's top share index fell on Friday, led lower by telecommunications companies hit by fallout from a blocked European deal and by struggling supermarkets.

British telecommunications companies Vodafone fell 1.9 percent and BT Group (LSE: BT-A.L - news) was down 1.5 percent after the European Commission blocked a merger between two Scandinavian telecom operators, knocking back hopes for further consolidation in the sector.

British grocers were also under pressure, with WM Morrison down 2.2 percent following a target price cut by UBS (NYSEArca: FBGX - news) on the back of Thursday's slump in profits.

Analysts at Barclays (LSE: BARC.L - news) said in a note that the limited growth opportunities that remain in the supermarket sector will be hard-fought, and that Morrison "must now generate real volume growth rather than relying on adding or maturing space."

Fellow grocers Sainsbury (Amsterdam: SJ6.AS - news) and Tesco (Xetra: 852647 - news) were both down 1.6 percent and 1.4 percent.

Britain's FTSE 100 was down 0.3 percent at 6,135.00 at 1136 GMT, a touch ahead of other European indexes, with investors displaying caution ahead of a U.S (Other OTC: UBGXF - news) . Federal Reserve meeting next week to make a decision on interest rates.

"The fact that we haven't been able to hold on to the gains that we've seen in the first part of the week suggests that I think investors remain very unsure," said Michael Hewson, chief market analyst at CMC Markets UK. He said it would be difficult to get a clear idea of the direction stocks would take ahead of the Federal Reserve's meeting.

Miners led the gainers, with Rio Tinto (LSE: RIO.L - news) rising 2.5 percent on a broker upgrade from UBS to "buy".

Glencore (Xetra: A1JAGV - news) was up 1.9 percent and Anglo American (LSE: AAL.L - news) 2.9 percent as spot iron ore prices posted a weekly gain of nearly 5 percent to their highest level since July.

Anglo American is also likely to be the next mining firm to follow Glencore's example in cutting its dividend to help contain debt levels and preserve cash amid a global commodity market slump, analysts and bankers said.

Glencore, weighed down by net debt of $30 billion and hurt by declines in the prices of its main copper and coal products to six-year lows, this week suspended dividends and said it would sell assets and raise $2.5 billion in a share sale.

In all, the FTSE 350 mining sector index was set to close 7.2 percent higher for the week. (Reporting by Kit Rees; Editing by Robin Pomeroy and Hugh Lawson (Other OTC: LWSOF - news) )