* FTSE 100 down 0.7 percent
* Banks hit as longs bail out ahead of ICB report
* Economic growth concerns hold bulls back
By Simon Jessop
LONDON, Sept 9 (Reuters) - Britain's FTSE 100 was lower at midday on Friday, and on course to snap three sessions of gains, with banks the worst hit ahead of a report into sector restructuring that could herald a dent to profits.
After trading in a broad 5.5 percent range, the index is up just 0.2 percent this week, as buying conviction remains poor in the face of a weakening global economy, persistent euro zone debt crisis and piecemeal political response to both.
The rangebound trade was also backed up by the technical outlook, Dominic Hawker, technical analyst for Arbuthnot Securities, said.
"The index is trading in a broad 5,000-5,5000 range and short-term volatility will continue in this range-trading environment ... reflecting the uncertainty among investment managers as a result of the macro outlook."
That uncertainty was compounded overnight when U.S. Federal Reserve Chairman Ben Bernanke gave no suggestion fresh stimulus was imminent, although President Barack Obama did unveil a bigger-than-expected jobs creation package that could support growth.
A two-day meeting of G7 finance chiefs starting Friday was the next focus for markets and, even though expectations were low, most investors were unwilling to go long heading into the weekend ahead of any firm news, traders said.
"The underlying macro picture is very slow growth with a European banking system that's broken -- and without political co-ordination will remain broken -- hitting sentiment," Gerard Lane, equity strategist at Shore Capital, said.
For lenders in the UK, the focus was on Monday's release of findings from the Independent Commission on Banking, which is expected to call for lenders' retail and investment banking arms to be split.
"For the banks, the key risks are rating downgrades, hits to profitability and higher funding costs," Michael Symonds, analyst at Daiwa Capital Markets, said.
Ahead of that news, shares in Lloyds Banking Group , Royal Bank of Scotland and Barclays were the three heaviest UK blue-chip fallers, down between 5 percent and 6.4 percent in one of the worst-hit sectors.
While recent weakness had seen "some bottom-fishing amongst bank shares", broader investor nervousness was unlikely to change "in the short-term at least", Ben Critchley, sales trader at IG Index, said.
Arbuthnot's Hawker painted an even more pessimistic technical picture for RBS and Lloyds. "All we've seen this week is a rally in a downtrend, with no sign they've developed any form of base," he said.
"The risk-reward is just not there. There's no long-term inflexion point on RBS and there's no base-building."
At 1134 GMT, the FTSE 100 was trading down 0.7 percent at 5,302.40 points, in volume of little more than one-third of its 90-day daily average. It remains down 10.1 percent in the year to date.
Britain's biggest listed motor insurer, Admiral , was among the biggest fallers for a second session, hit by news of a UK government move to ban lawyers paying insurers for referring accident victims.
Analysts said it makes more money this way than any of its rivals.
Admiral and its peers are also facing an Office of Fair Trading probe into other aspects of the motor insurance sector.
On the upside, Tullow Oil led UK and European blue-chip gainers after saying it had struck oil offshore French Guiana.
Its shares were up 12.7 percent in volume three-and-a-half times its 90-day daily average in the early afternoon session.
(Editing by Greg Mahlich and David Hulmes)
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