Britain's FTSE edges higher as IAG boosts travel stocks

* FTSE 100 up 0.1 pct

* IAG soars to 4-month high

* RBS end lower in choppy trade after results (Recasts, adds detail and quote, updates prices at close)

By Kit Rees and Alistair Smout

LONDON, Oct 28 (Reuters) - Britain's top share index edgedhigher on Friday, led by a rise in airlines following anearnings update from IAG, though banks were also in focus aftera busy week of earnings that saw the sector hold near itshighest level of 2016.

The FTSE 100 closed 0.1 percent higher at 6,996.26points, though it was down 0.3 percent for the week.

British Airways owner IAG was the biggest gainer onthe blue chip index, rising nearly 6 percent to a 4-month highafter hiking its dividend as it posted in-line results.

"International Consolidated Airlines Group has been buffetedby foreign exchange headwinds and air traffic control strikesbut improved its unit revenue performance in the third quarter,"Russ Mould, investment director at AJ Bell, said in a note.

Sector peer easyJet also rose, up 3.4 percent, whilecruise operator Carnival climbed 3.3 percent higher.

The banking sector, however, was once again in focus afterRoyal Bank of Scotland reported earnings.

The lender fell after a strong start to the session andended down 1.2 percent.

While operating profit beat consensus expectations, therewere significant costs incurred for misconduct and restructuringwhich saw it post a loss that was twice as big as analysts hadexpected.

"It faces headwinds, including an unacceptably low return onequity for many of its domestically focused businesses, and thepotential for fines," said Veronika Pechlaner, equity fundmanager at Ashburton.

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

Well-received results from Barclays and Lloyds had buoyed the FTSE 350 banking sector toits highest level for 2016 in the previous session. However, thesector retreated 0.1 percent after RBS' update.

The sector posted an 8.5 percent rise this month, however,with better than expected earnings in the United States alsohelping to fuel gains.

Among other fallers, Intu Properties was down 1.7percent after HSBC cut its target price on the stock, whileanalysts said pharma firms, such as Shire and Hikma, were under pressure as the U.S. presidential electiondraws nearer.

The mid-cap FTSE 250 also closed slightly higher, up0.4 percent, though a series of profit warnings and large fallsfrom firms such as Berendsen and Cobham thisweek saw the midcaps post their biggest weekly loss since July,down 1.6 percent.

The top riser, however, was Elementis, up over 11percent to its highest level since December 2015 and posting itsbiggest one day rise in six and a half years after its results. (Reporting by Kit Rees; Editing by Alison Williams)