Britain's FTSE steadies though banks, easyJet weigh

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* FTSE 100 flat

* Banks slide

* easyJet falls after downgrade

* William Hill jumps following merger talks

By Kit Rees

LONDON, Oct 10 (Reuters) - UK shares steadied on Monday as adrop in banking shares and easyJet capped gains, thoughmid cap bookmaker William Hill jumped after mergertalks.

The blue chip FTSE 100 index was flat in percentageterms at 7,046.97 points by 0920 GMT, though it remained closeto 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'sinternational, dollar-earning firms as well as exporters.

Banking stocks were the biggest fallers, with the FTSE 350banking index dropping 0.7 percent, mirroringlosses in European banks which dropped on worries about troubledlender Deutsche Bank, which failed to strike a dealwith the U.S. Department of Justice over the misselling ofmortgage-backed securities.

Barclays, Lloyds and Royal Bank ofScotland all fell between 2.2 to 2.8 percent.

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

Citigroup cut its target price on Lloyds, citing thepossibility of a dividend cut.

Analysts also said that concerns the British governmentmight not get a return on its 3.6 billion pound stake inthelender was also weighing on Lloyds.

Ratings downgrades also weighed on the shares of easyJet, which dropped 2.3 percent after target price cuts fromLiberum and Societe Generale, the latter of which also cut itsrating on the stock to "sell".

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

However, betting firm William Hill rose 2.2 percent afterconfirming merger talks with Canada's Amaya.

"While there are some positives, such as a possiblediversification away from UK retail and the appointment of acapable new top manager ... we are still not reassured by thehigher exposure to non-regulated markets that a deal wouldbring," 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 boostedafter Chinese markets returned following a week-long holiday,with Randgold Resources gaining 1.5 percent. (Reporting by Kit Rees)