Britain's FTSE marks best week in 2017 as dollar earners, financials shine

* FTSE 100 up 0.5 pct at close, mid caps up 0.3 pct

* Blue chips post best week in 2017

* Weak sterling helps overseas earners

* RBS (LSE: RBS.L - news) rises after H1 results

* Housebuilders drop on Help-to-Buy concerns (Recasts, adds detail and updates prices at close)

By Kit Rees

LONDON, Aug 4 (Reuters) - The UK's top share index enjoyed its best week so far in 2017 as gains among big defensive overseas earners on Friday outweighed falls for housebuilding stocks.

Britain's blue chip FTSE 100 index ended the session up 0.5 percent at 7,511.71 points after a shaky start to the trading session, while mid caps gained 0.3 percent.

A fall in sterling and strength in the dollar following a robust U.S. jobs report boosted shares in overseas earners, with a rise in stocks such as British American Tobacco (Kuala Lumpur: 4162.KL - news) and Diageo (LSE: DGE.L - news) helping lift the index into positive territory.

Energy firms and financials also underpinned the rally, with robust first half results from lender Royal Bank of Scotland sending its shares 2 percent higher, with peers HSBC , Barclays (LSE: BARC.L - news) and Lloyds also rising.

RBS' shares rose on signs that its recovery was gathering speed, after its first-half profit beat expectations.

"Bulls will like the strong capital and revenue beat," analysts at Jefferies said in a note.

Merlin Entertainments (Frankfurt: A1W713 - news) was the biggest riser, up 5.7 percent after saying that it still expected to deliver full year profit in line with current expectations.

Gains, however, were slightly dampened by sizeable falls among housebuilding stocks, with shares in Barratt Developments (Frankfurt: 859551 - news) , Persimmon (Frankfurt: 882058 - news) and Taylor Wimpey (LSE: TW.L - news) all sliding between 3.7 to 4.7 percent.

Housebuilders' shares fell following a report that the UK government was reviewing Help-to-Buy, a scheme aimed at helping first-time buyers onto the property ladder.

Some analysts, however, were not too concerned.

"We believe the violent share price falls were an over reaction to speculation," analysts at Jefferies said in a note.

"A housebuilder is always a willing seller, their business is to sell homes, for them selling a home is not a lifestyle choice. Yes Help to Buy helps, but ... we believe that two-thirds of Help to Buy sales would have been completed without Help to Buy," Jefferies analysts added.

Half year results weighed on education publisher Pearson (Amsterdam: PR8.AS - news) , whose shares fell 2 percent after cutting its dividend and saying that it would slash another 3,000 jobs.

Pearson (Xetra: 858266 - news) has struggled with a slowdown in its key North American market as well as the rise of digital, and its shares have dropped more than 20 percent so far this year.

Dividend disappointment also weighed on shares in Hargreaves Lansdown, which dropped 2.6 percent after the fund platform cancelled its special dividend for the year. (Editing by Matthew Mpoke Bigg and Toby Davis)