FTSE down as Vodafone drags, commodities ease

* FTSE 100 falls 0.5 pct

* Vodafone down after SocGen cuts price target

* Commodities slip but banks climb

By Michael Taylor

LONDON, Aug 28 (Reuters) - Britain's bluechip index edged lower early on Thursday as heavyweight Vodafone dragged after a negative broker note and commodities eased.

At 0802 GMT the FTSE 100 .FTSE was down 27.8 points, or 0.5 percent at 5,500.3.

One of the biggest weights on the UK benchmark was Vodafone, down 1.2 percent after Societe Generale cut its price target on the mobile phone group to 120 pence from 135 pence.

Heavyweight oil companies eased after gains in the previous session. BP , Royal Dutch Shell and BG Group lost 0.6-1.5 percent.

With a flurry of updates among mining shares, the sector also slipped as metal prices traded weaker.

Kazakh miner Kazakhmys shed 3.3 percent after it posted a 21 percent fall in first half earnings per share as bad weather hit output, outweighing higher prices.
Vedanta Resources , Rio Tinto , ENRC and BHP Billiton dipped 0.4-2.5 percent.

Ferrexpo was 0.4 percent lower after the Ukrainian iron ore miner posted a 105 percent jump in first half earnings per share on the back of record prices and said it was considering returning excess cash to shareholders.

In positive territory, UK banks featured after U.S. stocks rose overnight as investors grew more confident that Fannie Mae and Freddie Mac will not require a government bailout that would wipe out their equity.

Barclays , Royal Bank of Scotland , HBOS and Lloyds TSB tacked on 0.9 to 2.2 percent.

British subprime lender Cattles slipped 4.9 percent after it reported a 16.8 percent increase in its half-year profit but said more customers were experiencing repayment difficulties in the face of weakening economic growth.

Diageo , the world's biggest alcoholic drinks group, lost 0.5 percent after it matched forecasts with an 11 percent rise in underlying annual earnings, but cut its profit growth target due to slower global economic growth.

"Being the holiday season, volumes are very light, so investors aren't reading too much into market direction," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. "Obviously Wall Street was positive overnight."

"There do seem to have been a few things in recent days that have improved sentiment a little bit -- the situation for mortgage providers in the States seems to have eased somewhat, (and) durable goods figures provided a bit of optimism."

Europe's biggest travel company TUI Travel dipped 0.7 percent. TUI Travel entered into early talks with Lufthansa and Thomas Cook over a three-way merger of TUI Fly Germany, Condor, and Germanwings, the companies said. Thomas Cook also shed 0.7 percent.

BT Group was up 2.7 percent after Goldman Sachs upgraded its rating on the stock to "buy" from "neutral" and trimmed its price target to 215 pence from 250 pence.

On the downside, Severn Trent shed 2.3 percent after Goldman cut the water company's rating to "sell" from "neutral" with a price target cut to 1,396 pence from 1,585 pence.

The world's biggest hotelier, InterContinental Hotels , slipped 0.8 percent after French hotels and services group Accor posted first-half underlying profits in line with forecasts.

British Energy fell 0.6 percent, after the UK government said it wanted a deal between the British power company and EDF hammered out within the next two weeks, according to the Daily Telegraph.

On the economic front, British house prices fell 1.9 percent in the month of August to post their biggest annual drop since monthly records began in 1991, the Nationwide building society said.
Investors await U.S. inflation and GDP data later in the day for further clues on the health of the global economy.

(Editing by Rory Channing)