Britain's FTSE steadies though banks, easyJet weigh

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* FTSE 100 flat

* Banks slide

* easyJet falls after downgrade

* William Hill (Frankfurt: 633847 - news) jumps following merger talks

By Kit Rees

LONDON, Oct (HKSE: 3366-OL.HK - news) 10 (Reuters) - UK shares steadied on Monday as a drop in banking shares and easyJet capped gains, though mid cap bookmaker William Hill jumped after merger talks.

The blue chip FTSE 100 index was flat in percentage terms at 7,046.97 points by 0920 GMT, though it remained close to a year-high and outperformed the broader continental market.

The FTSE 100 posted a gain of 2.1 percent last week, supported by a plummet in sterling which helped the index's international, dollar-earning firms as well as exporters.

Banking stocks were the biggest fallers, with the FTSE 350 banking index dropping 0.7 percent, mirroring losses in European banks which dropped on worries about troubled lender Deutsche Bank (LSE: 0H7D.L - news) , which failed to strike a deal with the U.S. Department of Justice over the misselling of mortgage-backed securities.

Barclays (LSE: BARC.L - news) , Lloyds and Royal Bank of Scotland all fell between 2.2 to 2.8 percent.

"We're coming up to the earnings results for Q3 for most of the major banks in the UK...and that's going to cover the large part of the post-referendum period, so it's really going to be the first indication that we get as to the health of the banks in terms of earnings," Henry Croft, research analyst at Accendo Markets, said.

Citigroup (NYSE: C - news) cut its target price on Lloyds, citing the possibility of a dividend cut.

Analysts also said that concerns the British government might not get a return on its 3.6 billion pound stake in thelender was also weighing on Lloyds.

Ratings downgrades also weighed on the shares of easyJet , which dropped 2.3 percent after target price cuts from Liberum and Societe Generale (Swiss: 519928.SW - news) , the latter of which also cut its rating on the stock to "sell".

The budget airline issued a profit warning last week, hit by security concerns and foreing exchange problems.

However, betting firm William Hill rose 2.2 percent after confirming merger talks with Canada's Amaya (Frankfurt: 0AY.F - news) .

"While there are some positives, such as a possible diversification away from UK retail and the appointment of a capable new top manager ... we are still not reassured by the higher exposure to non-regulated markets that a deal would bring," Roberta Ciaccia, analyst at Berenberg, said in a note, adding that the poker market also remained under pressure.

Likewise mining companies rose as metals prices were boosted after Chinese markets returned following a week-long holiday, with Randgold Resources gaining 1.5 percent. (Reporting by Kit Rees)