LONDON (Reuters) - Britain's top shares index edged lower on Monday as a fall in the shares of Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) and its rival Lloyds (>> Lloyds Banking Group PLC) weighed on the overall market.

The blue-chip FTSE 100 index <.FTSE> was down 0.2 percent at 6,879.42 points by the close, retreating from a 2.2 percent rise on Friday that pushed it up to a two-week high.

RBS was the biggest faller on the FTSE 100, falling 3.5 percent, with Lloyds down 2.1 percent, after Deutsche Bank downgraded RBS to "sell" from "hold" and cut Lloyds to "hold" from "buy".

Deutsche Bank said RBS would be hit by the negative interest rate environment engulfing the broader banking sector, since rock-bottom rates can hit banks' profitability, while Lloyds could be impacted by customers' re-mortgaging.

"This Deutsche report is impacting the UK banks, with a pretty substantial downgrade of RBS," said Mike Ingram, market analyst at BGC Partners, who said that interest rates were so low as central banks had to make up for policy inaction by governments.

"We're just coming out of another G20, with a lot of jaw-boning about looking at non-monetary policy options, but there's a lot of rhetoric and not much action."

The weak economic backdrop, which has led to record low interest rates in the euro zone and Britain in a bid to stimulate growth and lending, was also highlighted by leaders at the G20 meeting in China.

"Although stock markets may be open to further gains in the short term, the ingredients for a bear trend remain visible and as such should keep investors alert. The ongoing concerns over the global economy may spark jitters," said FXTM research analyst Lukman Otunuga.

The FTSE 100 is up around 10 percent so far in 2016, although the U.S. dollar value of UK shares was impacted by a drop in sterling in the immediate aftermath of Britain's June vote to leave the European Unio.

The index was also hindered by a rise in sterling , which climbed following data which showed that Britain's services industry bounced back strongly last month from a slump triggered by the Brexit referendum. [GBP/]

The globally-focused companies that dominate the FTSE 100 <.FTSE> tend to benefit when sterling falls on currency markets, since a weaker sterling can help their exports.

However, the relatively robust services industry reading helped the FTSE 250 mid-cap index <.FTMC>, whose companies are more exposed to the domestic UK economy than those in the FTSE 100. The FTSE 250 rose 0.1 percent.

Oil and gas shares rose, in line with crude prices. The sector <.FTNMX0530> was 1 percent higher, ending off of highs.

Brent crude had been up as much as 5 percent in anticipation of a deal between Saudi Arabia and Russia to limit output. However, it was up just 1.4 percent after the agreement yielded no immediate action.

By Sudip Kar-Gupta and Alistair Smout