Britain's FTSE set for weekly fall as banks ease back from 2016 high

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* FTSE 100 down 0.2 pct

* RBS (LSE: RBS.L - news) turns lower in choppy trade after results

* IAG soars to 3 month high

By Alistair Smout

LONDON, Oct (HKSE: 3366-OL.HK - news) 28 (Reuters) - Britain's top share index fell on Friday, set for its biggest weekly fall in 6 weeks, with banks in focus after a busy week of earnings that saw the sector run up to its highest level of 2016.

The FTSE 100 fell 0.2 percent to 6,973.00 by 0930 GMT. It was down 0.7 [percent for the week, the biggest weekly drop since mid-September.

In focus on Friday was RBS after it reported earnings. It fell after a strong start to the session, and was down 2.1 percent, the top FTSE 100 faller.

While operating profit beat consensus expectations, there were a significant of costs incurred for misconduct and restructuring which saw it post a loss that was twice as big as analysts had expected.

"It faces headwinds, including an unacceptably low return on equity for many of its domestically focussed businesses, and the potential for fines," said Veronika Pechlaner, equity fund manager at Ashburton.

"It's a small beat, but it doesn't change the story a whole lot, especially as they remain very cautious on the outlook."

Well-received results from Barclays (LSE: BARC.L - news) and Lloyds had buoyed the FTSE 350 banking sector to its highest level for 2016 in the previous session. However, the sector was down 1 percent after RBS' update.

The sector remains set for a 7.6 percent rise this month, however, with better than expected earnings in the United States also helping to fuel gains.

Among other fallers, Intu Properties (Other OTC: CCRGF - news) was down 1.7 percent after HSBC cut its target price on the stock.

British Airways owner IAG rose 4.1 percent to a 3 month high after hiking its dividend as it posted in-line results.

The mid-cap FTSE 250 was down 0.3 percent. Top riser was Elementis (Frankfurt: 912541 - news) , up over 9 percent to its highest level since April 2016 and set for its biggest one day rise in three years after its results.

(Reporting by Alistair Smout; Editing by Toby Chopra)