RBS leads financials retreat as Britain's FTSE falls

* FTSE 100 down 8.25 points at 6,720.12

* RBS (LSE: RBS.L - news) leads banks down after GS (KSE: 078935.KS - news) cuts to "neutral"

* China reform worries hurts miners

* GlaxoSmithKline (Other OTC: GLAXF - news) drug woes dent pharmas

* Vodafone bounces as M&A speculation outshines mixed update

By David Brett

LONDON, Nov 12 (Reuters) - Financials dragged Britain's top share index lower late on Tuesday after Goldman Sachs (NYSE: GS-PB - news) downgraded Royal Bank of Scotland, while China's economic reform plans hit mining stocks.

Banks and insurers combined to take 6.9 points off the FTSE 100, handing back most of the gains they had made in the previous session.

The sector's top faller was partly state-owned Royal Bank of Scotland, which fell 1.3 percent to 333 pence on valuation worries after Goldman Sachs removed the stock from its conviction "buy" list and cut its rating to "neutral".

Nomura was also cautious, estimating fair value for the UK lender at 285 pence, 14 percent below its current market price.

"Litigation charges in excess of 6 billion pounds by 2018, Citizens Financial Group (its U.S. retail bank) sale below 1.1 times price-to-book, restructuring charges not yet announced, and changes to macro sentiment create downside risk," it said.

The new head of the agency managing Britain's bank stakes meanwhile said RBS must address issues over capital and future strategy before the government can start selling its shares. ID:nL5N0IX2WN]

Miners took 2.2 points off London's blue-chip index, tracking weaker metals prices. Traders said that reflected expectations reforms outlined in top consumer China's 10-year economic plan will be toned down, potentially hitting demand for basic resources.

Healthcare (Other OTC: HCCAE - news) firms knocked 4.3 points off the FTSE 100. Heavyweight GlaxoSmithKline fell 1.2 percent after an experimental drug designed to combat heart disease failed to meet its main goal in the first of two big late-stage clinical studies.

London's blue chip index fell 8.25 points, or 0.1 percent to 6,720.12, by 1530 GMT. The FTSE 100 has slipped from a five-month high of around 6,777.50 scaled in late October.

VALUATION FROTHY

Valuation concerns remain a worry for stocks listed in Britain and Europe, which currently trade on price-to-earnings multiples above their longer-term averages.

"We are probably close to the top of the current valuation cycle, but we don't expect a big decline in valuation metrics," said Patrick Moonen, senior equity strategist at ING Investment management.

Global monetary policy, however, remains easy and risk-appetite continues to support flows towards the equity market.

"Overall, the fundamental outlook for equities remains positive, provided political turmoil does not last long enough to derail investor confidence," Moonen said.

Technical analysts also remained positive on the outlook for the market, which is still up about 14 percent this year.

"The UK index is still within striking distance of its recent high and there is little in the current technical picture to suggest that it is about to fall away," Bill McNamara, technical analyst at Charles Stanley (LSE: CAY.L - news) , said in a note.

"Last week's trading low, at 6,643, is probably the level to watch in terms of support."

The UK's fifth largest listed company by market capitalisation, Vodafone, provided most of that support after early weakness, rebounding 1.1 percent following a mixed trading update as traders saw M&A value.

"In a consolidating industry, we believe a smaller Vodafone is vulnerable to a bid from a large global player looking to expand its European mobile footprint," said Jonathan Jackson, head of equities, Killik & Co.

Pay-TV group BSkyB rebounded 2.1 percent on bargain hunting following Monday's sharp falls after it lost the rights to show Champions League football to rival BT.

Irish building supplies group CRH (Berlin: CRG.BE - news) led FTSE 100 gainers, up 3.7 percent after announcing a review of its business following a 2 percent rise in third-quarter revenues.

BSkyB and CRH were among the most heavily traded stocks on the FTSE 100 around midday, each trading at around three times their 90-day daily average. (Editing by Catherine Evans)