Banks outperform Britain's FTSE after RBS's bumper results

* FTSE 100 down 0.2 pct on the day, up for the week

* RBS jumps 11 pct as UK upturn boosts results

* BSkyB falls 5 pct on news of 4.9 bln pound acquisition

* GSK pegs back FTSE on corruption allegations

By Francesco Canepa

LONDON, July 25 (Reuters) - British lenders who focus on thedomestic market outperformed a slightly negative FTSE 100 index on Friday after strong results from Royal Bank ofScotland and solid economic growth data.

The FTSE, down 0.2 percent on the day but still up 0.8percent on the week, succumbed to profit taking in late trade asRussia accused Ukraine of having shelled across the border,reviving investor concerns about the conflict there.

BSkyB was the heaviest faller on the FTSE, sliding 5percent, after the company agreed to pay 4.9 billion pounds($8.3 billion) in cash to buy Rupert Murdoch's pay-TV assets inGermany and Italy, partly financing the deal by the placing ofBSkyB shares.

Shares in RBS, however, surged 11.5 percent, on track fortheir biggest rise in four years, after the bank posted asurprise pretax profit for the second quarter, citing aneconomic upturn that allowed it to write back losses that hadbeen booked on bad loans.

Fellow British-focused lenders Barclays and LloydsBanking Group, which are due to report next week, wereup around 2.2 percent and 1.5 percent, respectively.

"Credit quality keeps improving, especially in distressedassets such as commercial real estate," said Espirito Santoanalyst Shailesh Raikundlia, who has a "neutral" recommendationon the stock.

"In general, the credit environment is pretty benign andthat should come through in banks' results."

The positive mood on the British economy was underpinned bydata showing economic output in the second quarter finallytopped levels seen before the financial crisis struck six yearsago.

"The UK is having the best of times," said Gerard Lane, astrategist at Shore Capital.

Lane said he expected the pace of economic growth in Britainto slow versus the rest of the world next year, however, owingto a tighter monetary policy by the bank of England and lowerpublic spending after a general election due to be held in May.

Financial shares added 11 points to the FTSE 100,which was down 13.55 points at 6,807.91 points at 1452 GMT.

Other gainers that focus on the domestic market includedBritish grocer J Sainsbury, up 1.6 percent, withtraders citing a Daily Mail report of fresh bid interest fromQatari investors. The company declined to comment.

Among mid-caps, shares in two of Britain's biggestconstruction companies, Balfour Beatty and Carillion, rallied after they confirmed that they were in earlytalks on a possible 3 billion pound ($5 billion) merger.

Network operator Vodafone added a further 5.3 pointsto the FTSE as it rose 2.6 percent after saying its performancehad begun to stabilise in several Europeanmarkets.

Pegging back the FTSE on Friday were export-orientedcompanies such as heavyweight drugs firm GlaxoSmithKline and fashion brand Burberry.

GSK knocked 8.3 points off the index as it faced newallegations of corruption, this time in Syria, where thedrugmaker and its distributor have been accused of paying bribesto secure business, according to a whistleblower's email.

Burberry fell 1.8 percent after French luxury goods groupLVMH posted below-forecast second-quarter sales andprofits, hit by a drop in demand from China. (Additional reporting by Lionel Laurent; Editing by SusanFenton)