June 7, 2017 / 10:12 AM / 2 months ago

Financials lift Britain's FTSE as markets brace for election

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* FTSE 100 up 0.2 pct

* Investors eye tighter than expected UK election

* RBS leads financials higher

* RPC falls after results

By Helen Reid

LONDON, June 7 (Reuters) - Britain's major share index rose as banks enjoyed a lift from RBS and mid-caps outperformed on Wednesday, a day before Britons were set to begin voting in parliamentary elections.

The FTSE 100 was up 0.2 percent on the final day of a campaign which has seen polls suggesting support for Prime Minister Theresa May's party was slipping, raising the possibility of a smaller majority or a hung parliament.

But investors still saw a Conservative majority as the most likely outcome and although volatility has ticked up over the past week, it remains near historic lows and far from its levels in the run-up to the Brexit vote in June last year.

Mid-caps outperformed blue-chip stocks, up 0.5 percent after three sessions in the red. The more domestically-exposed stocks have been under more pressure of late due to the perception of heightened British political risk.

"I think mid-caps will do better on the back of a Conservative win," said Colin McLean, manager of the UK growth fund at SVM Asset Management, adding they may suffer from a win by Labour whose policies could increase labour costs.

"The bigger picture is that international stocks have been doing less well ... quite a lot of what drove markets last year has gone into reverse over the last six months and investors are looking again at some of the beneficiaries of lower growth and deflation," he added.

"That probably drives investors a little bit more than the election."

Royal Bank of Scotland was the top FTSE gainer on a subdued day of trading, leading financials stocks which were the biggest boost to the index, helped higher by relief after the rescue of Spain's Banco Popular by Banco Santander .

Lloyds and Barclays gained 1.4 to 1.6 percent. Europe's banking stocks were among the best sectoral gainers.

Pharmaceuticals companies were the top fallers among major global companies.

Astrazeneca fell 1.4 percent, after selling the rights for its migraine drug Zomig to Grunenthal for up to $302 million.

Shire also dropped 2 percent.

House prices in May came in 3.3 percent higher than a year ago, slightly ahead of the forecast by economists in a Reuters poll, giving a slight boost to housebuilders Persimmon and Taylor Wimpey.

Money managers were treading carefully ahead of the next big potential macro shock, mindful of the unexpected outcomes of the Brexit vote and U.S. election.

"This is a dangerous game to play - as polls and bookmakers alike can often be wrong. Even with the result known, market direction is difficult to predict," said Asbjorn Trolle Hansen, manager of the Nordea GBP diversified return fund.

Packaging group RPC's profits more than doubled, yet it fell 2.2 percent, among the worst-performing mid-caps. Some brokers had raised concerns over its acquisition-heavy strategy.

"The group has tried to address these concerns with increased disclosure in these results but has clearly failed to satisfy the market," said Nicholas Hyett, equity analyst at Hargreaves Lansdown. (Editing by Alexander Smith)

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