* FTSE 100 down 0.3 percent
* Oils, miners fall in tandem with commod weakness
* Banks rally on Basel III proposals
* Morrison enjoys relief gains after trading update
Britain's top share index paused early on Monday from a rally that has brought it close to two-year highs, as weakness in commodity-related stocks offset gains in banks spurred by a regulatory relaxation in Europe.
London's blue chip index was down 17.87 points, or 0.3 percent, at 6,071.97 by 0905 GMT. The index had closed on Friday at its highest level since early February 2011.
Integrated oils and miners were the main drag on the index, falling with base metal and oil prices, traders said.
Those losses outpaced gains in banks.
Interest in UK lenders was spurred by global regulators' decision on Sunday to give banks four more years and greater flexibility to build up cash buffers so they can use some of their reserves to help struggling economies grow.
"Overall the relaxation of Basel III liquidity rules will be helpful to UK banks in terms of their ability to lend and their profit generation capability," Shore Capital said in a note.
The broker said for investors seeking exposure to UK banks, its preferred names were Lloyds Banking Group and Standard Chartered.
Elsewhere, Wm Morrison Supermarkets, Britain's fourth-biggest food retailer, edged up 0.5 percent with traders citing relief the firm had managed to avoid a profit warning after reporting falling sales over Christmas.
"Signs of progress should become more evident by the start of the second half. This, combined with continued cost savings opportunities, an attractive valuation (and yield) and a strong balance sheet suggest that patience will pay off later in the new year," Jeffries said in a note.
British American Tobacco (BAT) added 0.9 percent after Deutsche Bank upgraded the company to "buy" from "hold" on valuation grounds.
"Imperial Tobacco ... remains our top pick across European Tobacco names, (but) we have upgraded our recommendation on BAT to 'buy' as we consider the current price a solid entry point to a high-quality stock," the U.S. investment bank said in note.
With no important data due for release on Monday the market was lacking direction, with some stocks hovering near overbought levels and traders returning to their desks after holidays.
"With more investors back at their desks this week, the true mood of the market should become clearer," Ian Williams, strategist at Peel Hunt, said. "The overweight lower quality trade that we have been playing since late October continues to prosper."
Despite losses on Monday, UK blue chip equities have gained around 3 percent since the start of 2013.
Although the FTSE 100 has averaged a 0.4 percent rise in the first month of the year since 1984, since 2007 five out of six Januaries have resulted in losses - the exception being 2012 when the index rose 2 percent.
With the FTSE 100 now testing both two-year and three-and-a-half-year highs, technical analysts said the index would need to see a retracement of around 50 points before the bears start to take control.
"Based on the 240-minute chart, a move through 6,038.00 will be the first sign of weakness, followed by 6,016.80," a technical analyst said.