* FTSE 100 up 0.2 percent, retreating from 5-month high
* Banks fall, Man Group up on bid talk
* BoE, ECB interest rate decisions awaited
By Simon Falush
LONDON, Oct 7 (Reuters) - Britain's top share index gained slightly by midday on Thursday as stronger pharmaceuticals outweighed falls in banks, with moves muted as investors awaited interest rate decisions.
By 1022 GMT, the FTSE 100 was 8.91 points or 0.2 percent higher at 5,690.30 after it gained 0.8 percent on Wednesday, a five month closing high.
The Bank of England is expected to leave interest rates on hold again on Thursday, with all 61 analysts polled by Reuters expecting rates to stay at 0.5 percent.
But the outcome may conceal a three-way split between policymakers, arguing for the first time since November whether economic conditions justify a tighter or looser policy.
"People will be looking to see if quantitative easing has been discussed by the MPC," said David Morrison, market strategist at GFT Global.
"Quantitative easing has put pressure on the dollar which has pushed up asset prices and that's been behind much of the gains in equities."
The dollar fell to a 15-year low versus the yen and an all-time low against the Swiss franc on the prospect of more money-printing by the U.S. Federal Reserve.
Risk-sensitive banks were the biggest drag on the index as investors rotated out of the sector after heavy buying in recent sessions. Barclays fell 0.3 percent while Lloyds Banking Group fell 1.8 percent.
Antofagasta was among the top fallers, down 2.5 percent after Citigroup cut it to "sell" from hold, citing valuation grounds.
The European Central Bank will also give its latest interest rate decision on Thursday, although again no changes are expected to euro zone monetary policy.
Moves are likely to be relatively muted ahead of nonfarm payrolls on Friday. Economists forecast a fall of 54,000 jobs, but anything much higher than this could trigger a sell-off after recent hefty gains.
Man Group was the top blue-chip performer, jumping over 5 percent, with traders citing talk of bid interest from a U.S. investment bank. Its shares are 15.5 percent higher this week.
Defensive pharmaceuticals stocks were also higher with AstraZeneca up 0.9 percent and GlaxoSmithKline up 0.7 percent.
In a sign that parts of the UK economy are struggling to move into recovery mode, British house prices plunged a record 3.6 percent in September, mortgage lender Halifax said on Thursday.
Marks & Spencer results also hinted at the tough times ahead for the UK economy. The retailer fell 0.9 percent despite beating forecasts as it said trading conditions would get tougher as austerity measures hit consumers.
But British manufacturing output rose for a sixth consecutive month in August and by its fastest annual rate in over 15 years, easing fears the economy is on the verge of a sharp downturn.
The U.S. data focus will be on the latest weekly jobless numbers, due at 1230 GMT, another indicator for Friday's nonfarm payrolls. (Editing by Elaine Hardcastle)