UPDATE 1-UK banks target eurosceptic ministers as 'hard Brexit' fears grow

* Banks seek transitional period after UK leaves EU

* Focus lobbying efforts on eurosceptics Davis and Fox

* Change of tack reflects growing fears of 'hard Brexit'

* But Davis says there will be no separate deal for London (Adds Davis saying no separate deal for London)

By Andrew MacAskill and Anjuli Davies

LONDON, Oct 4 (Reuters) - As Britain's banks brace for a"hard Brexit" that could sever their links with the EU market,they are changing lobbying strategy and focusing efforts oneurosceptic cabinet ministers to try to secure a transitionalperiod for their industry.

Since Britons voted in June to leave the bloc, banks haveheld a series of meetings with the finance ministry but have hadfew formal talks with the government departments dealing withBrexit, led by eurosceptics David Davis and Liam Fox, accordingto several senior sources in the financial services industry.

This is changing as executives increasingly fear Britain isheading for a clean break with the EU in a drive headed byardent Leave campaigners Davis and Fox, rather than a "softBrexit" that would see it retain some access to the singlemarket - an outcome backed by finance minister Philip Hammond.

The sources said they were working to set up meetings in thecoming weeks with the government departments led by Davis - thesecretary of state for exiting the European Union - and Fox, theinternational trade secretary.

Banks - which have relied on "passporting" rights to selltheir services across the EU - are seeking a buffer period of upto five years after Britain's exit from the European Union toallow them to adjust their businesses, saying this would helpavoid a big shock to financial markets.

The urgency for talks with the eurosceptic ministers hasincreased after Prime Minister Theresa May said on Sunday thatshe would trigger the process to leave the European Union by theend of March. She also signalled that curbing immigration fromthe EU would take precedence over single market access in thedivorce negotiations with Brussels.

One senior executive in London's financial sector said theyhad spoken with Davis on the phone, and had a formal meetingplanned with him in the coming weeks.

"We have spent too long preaching to the converted," theexecutive said of talks with the Treasury. "We are losing theargument. In the last few weeks the government position seems tobe moving towards a hard Brexit."

A senior banker also said they were planning to hold theirfirst talks with Davis's department later this month.

A spokesman for Davis, who will lead Britain's Brexitnegotiations with the EU, declined to comment.

The scale of the bankers' task was underlined on Tuesdaywhen the minister said there would be no separate deal for thefinancial services industry, denting hopes of a transitionarrangement. "This is about trying to get the best for theentire country," he said at the ruling Conservative Party'sconference. "We're not going to float London off."

Earlier in the day, he said Britain would negotiate an EUexit deal that resolved concerns in London's financial sectorabout passporting rights.

A spokeswoman for Fox, who is part of the negotiating teamand will also seek to broker non-EU trade deals, said theminister wanted a deal that allowed British companies to tradewith the single market.

BANKERS SCEPTICAL

Hammond, who had campaigned to remain in the EU, has shownhis support for London's financial services since he took overas finance minister in July, saying he will push to retainaccess to the single market for an industry that generates abouta tenth of Britain economic output.

But the finance ministry - or Treasury - is less powerfulthan in previous governments because May is relying more onaides, and Davis and Fox are assuming greater influence in thetalks to leave the EU, according to government officials.

Following May's announcement at the weekend, Britain's majorfinancial industry trade groups, including TheCityUK and BritishBankers' Association, called on the government to push for abuffer deal to avoid disruption to financial markets.

"What firms in the financial and related professionalservices industry will want to see as early as possible is anagreed and secured transitional period to help ensure financialstability," said Miles Celic, chief executive of TheCityUK.

Bankers in private, though, are sceptical that the industrywill be allowed up to five further years to arrange theiraffairs, on top of the two-year period that will be triggeredwhen Britain starts the process to leave the EU.

They said any such deal would need to be in place by thetime Britain triggered the exit process next year, to preventbanks shifting staff and operations out of Britain because theyfeared losing access to sell services freely across Europe.

Bankers and lawyers said that was unlikely to happen becauseEU members have said no talks about any exemptions orconcessions - even temporary, as envisaged by a transitionaldeal - can begin until Britain has formally applied to leave.

TRADE-OFF

Such arrangements have also never been negotiated before andwould raise complex issues, such as whether Britain is legallyinside or outside the EU during a transition period.

"It seems positively impossible that we will get anagreement on this," said one person involved in the talks.

Much of the negotiations between London and Brussels areexpected to boil down to a trade-off between Britain's controlson immigration and its access to the EU single market.

Davis and Fox are perceived in the financial servicesindustry as being less sympathetic to its situation because oftheir insistence that Britain must take control of it borders.

Davis said last month that it was "very improbable" Britainwould retain membership of the single market.

"It does make you despair," said a senior executive at oneof Britain's largest banks, referring to Davis's comments on thesingle market. "Is he going to be a champion of one of our onlyworld-class industries? I am not sure he is." (Additional reporting from William Schomberg, William James andKylie Maclellan; Editing by Rachel Armstrong and Pravin Char)