FTSE flat as BoE holds interest rates at 0.5%

* FTSE flat

* UK interest rates stay 0.5% despite rising inflation

* Defensives gain as global growth concerns linger

By David Brett

LONDON, June 9 (Reuters) - Britain's FTSE 100 was flat on Thursday with gains in defensive stocks offsetting falls in banks as the Bank of England Monetary Policy Committee voted to keep UK interest rates at record lows.

As expected, interest rates remained at 0.5 percent for the 27th consecutive month despite rising inflation, which is threatening to hit 5 percent towards the end of the year and derail the economic recovery.

"The past few weeks have seen a raft of disappointing data pointing to a subdued economy, and markets have significantly pushed back their expectations for the first interest rate hike well into next year, which seems to us entirely rational," Hetal Mehta UK Economist at Daiwa Capital Markets Europe Ltd said.

The European Central Bank will also unveil its latest decision on interest rates at 1145 GMT, also with no changes expected, although the ECB is expected to flag a likely rise in July. [ID:nLDE7571SL]

The FTSE 100 <.FTSE> was down 1.01 points to 5,807.88 by 1102 GMT, having closed down 1.0 percent at 5,808.89 on Wednesday, and breaching its 200-day moving average of 5,815.

Defensive stocks such as utilities Centrica and National Grid , up 1.2 and 0.7 percent, curried favour with investors as doubts over the sustainability of the global economic recovery persisted.

Meanwhile, Weir Group rose 2 percent, as RBC Capital Markets becomes the latest broker to talk up the virtues of the British engineer, lifting its earnings forecasts.

Banks were a major weakness on the FTSE 100.

Lloyds Banking Group fell 2.5 percent. Traders cited comments made by its chief executive Antonio Horta-Osorio at a treasury committee hearing, repeating his view that it will take three-to-five years to turn the bank's fortunes around.

Lloyds also said it will spin off over 600 branches and list them as a new British bank if an auction of the business fails to attract decent bids, which Horta-Osorio said "is against the interests of our shareholders, including taxpayers".

Retailers were bruised after Home Retail reported worse-than-expected sales at its Argos stores. [ID:nLDE7520D9]

Home Retail, Britain's biggest household goods retailer, fell 12 percent, and Investec analyst David Leary said the update is likely to drive up to a 20 percent cut to current consensus pretax profit forecasts of 201 million pounds.

An update from British sportswear retailer JD Sports Fashion sent its shares 7.5 percent lower. Blue chip retailers Marks & Spencer and Next fell 1.6 and 0.8 percent respectively.

Elsewhere, Smiths Group was 1.8 percent lower, as Evolution Securities initiated coverage on the technology firm with a "reduce" rating following Wednesday's trading update. (Editing by Hans Peters)