FTSE enjoys first week of gains since May, though oil weighs

* FTSE 100 up 0.2 pct

* First (Other OTC: FSTC - news) weekly gain in 5 weeks

* Energy, banks weigh on index

* Takeover talk lifts Centrica (Frankfurt: A0DK6K - news)

* Broker changes move easyJet, Royal Mail (LSE: RMG.L - news) , WPP (Frankfurt: A1J2BZ - news)

* Small-cap Cape (LSE: CIU.L - news) soars on takeover (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon, see cpurl://apps.cp./cms/?pageId=livemarkets)

By Kit Rees and Helen Reid

LONDON, July 7 (Reuters) - Falls in energy and bank stocks dampened an otherwise positive week for Britain's top share index, while changes in broker recommendations prompted moves in easyJet, WPP and Royal Mail.

Britain's blue chip FTSE 100 index ended the day up 0.2 percent at 7,350.92 points, reversing earlier losses after weak housing data drove sterling to a nine-day low, helping the index's dollar earners.

Non-farm payrolls data from the U.S. showing stronger than expected jobs growth also helped support gains which led blue chips to their first positive week since the end of May.

Oil & gas stocks dropped however after oil prices fell more than 1 percent following a rise in U.S. output, with Royal Dutch Shell (LSE: RDSB.L - news)

"Regardless of what OPEC try and do, it seems the supply overhang is preventing any kind of sustainable rally," Ian Williams, strategist at Peel Hunt, said.

Financials were also weaker, with HSBC and Barclays (Swiss: BARC.SW - news) both in negative territory, cooling after the sector hit its highest level since the end of February in the previous session on expectations of higher interest rates.

Supporting the index, shares in easyJet rose 5.3 percent after Credit Suisse (IOB: 0QP5.IL - news) upgraded the budget airline to "outperform" on the back of an improvement in summer trading.

Utility Centrica was among biggest gainers, up 2.8 percent on takeover rumours, although analysts at Jefferies were sceptical.

Royal Mail was the worst performer on the day after UBS (LSE: 0QNR.L - news) cuts its rating to "sell" from "neutral", saying the company would continue to see sub-market growth in parcel volume due to its need to modernise.

WPP also fell 2.7 percent after Exane BNP Paribas cut the advertising firm to "underperform" and downgraded French peer Publicis (Paris: FR0000130577 - news) to "neutral", saying they need to evolve more quickly.

"Marketing is driven by mobile, nimbler brands, ecommerce and automation/AI. These areas are dominated by platforms where agencies are sparse, raising the risk of lower mid-term growth," analysts at Exane said.

"WPP (Swiss: OXWPP.SW - news) & Publicis have good track records of adapting to industry changes. We would buy once evidence they have adapted mounts, or on a much greater valuation discount," they added.

Outside of the blue chips, a strong trading update from retailer Dunelm sent its shares 5.4 percent higher to the top of the FTSE 250, which closed 0.1 percent higher.

In a second takeover in as many days for British small-caps, Cape shares soared 46 percent after French construction equipment maker Altrad Investment Authority said it would buy the oil services firm.

"It's been a little surprising we have not seen more international buyers [for UK companies] given the fact that sterling has been so cheap," said Andy Jackson, manager of the UK value opportunities fund at Miton.

"I think there could well be more approaches." (Editing by Alexander Smith)