Miner falls drag FTSE down, offset bank gains

* FTSE down 0.4 percent

* Miners fall; BofA Merrill Lynch downbeat on sector

* Banks higher; Dubai World restructures debt

By David Brett

LONDON, May 20 (Reuters) - Britain's top shares reversed early gains to be slightly down by midday on Thursday, as a fall in miners, weighed by downbeat broker comment, outpaced a rally in banks on the back of upbeat debt news from Dubai.

By 1041 GMT, the FTSE 100 .FTSE was down 20.34 points, or 0.4 percent, at 5,137.74, having fallen 2.8 percent on Wednesday when Germany's naked short-selling ban hit sentiment.

"Continued mining weakness is giving us a clear indication that sentiment is still weak and market confidence remains low," Giles Watts, head of equities at City Index said.

Miners, initially higher with metal prices in early trade, sagged as a downbeat note from BofA Merrill Lynch, which cited potential China monetary tightening and European sovereign debt issues hitting demand for metals.

Rio Tinto (RIO.L) and Xstrata (XTA.L), which were both cut by the broker to "neutral" from buy" fell 3.6 and 2.7 percent respectively , while Kazakhmys (KAZ.L) and Vedanta (VED.L), which Merrill Lynch double downgraded, fell 3.1 and 3 percent respectively.

Rio Tinto faces a more difficult task to move ahead on its Australian projects because of Canberra's planned new tax on mining profits, a company executive said. [ID:nSYU009968].