* Pan-European STOXX 600 ends 0.4 pct lower
* Precious metals miners up as gold rises
* Banking stocks feature among top fallers (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets)
By Atul Prakash and Kit Rees
LONDON, Dec 29 (Reuters) - Britain's top share index posted its highest-ever closing level on Thursday following a rally in precious metals miners on stronger gold prices, although weaker banks dragged down a pan-European index in holiday-thinned trade.
Gold miner Randgold Resources jumped 4.8 percent, the biggest gainer in the FTSE 100 index, after gold hit it highest in two weeks on a weaker dollar that generally makes the metal cheaper for other currency holders. Another gold miner Fresnillo surged 4.6 percent.
The United Kingdom's blue-chip FTSE 100 ended 0.2 percent higher at 7,120.26 points, a record closing high for a second straight session, and was less than 10 points below the index's life-time high of 7,129.83 points set in October 2016. However, volumes were less than half of its 90-day daily average.
Base and precious metals miners have helped the FTSE 100 to lead major European stock indexes in 2016. The UK index is up 14 percent this year, against a 1.5 percent fall seen by the pan-European STOXX 600 index.
On the other hand, Italy's FTSE MIB index is down around 10 percent this year, the worst performer in Europe, following concerns about the health of its banking sector.
"The banks have really been the ultimate pain trade for professional fund managers in the second half of the year, and it's all been very much part of this switch from expensive defensives and quality growth to cyclicals," Russ Mould, investment director at AJ Bell, said.
"Because they're very difficult companies to understand and ... you've got the ongoing Italian situation, lots of fund managers are still fighting shy of them, but they did brilliantly in the second half of the year."
Banks were the top fallers in Europe on Thursday, led lower by Italian merger partners Banco Popolare and Banca Popolare di Milano, down 3.8 percent and 3.5 percent respectively. The banking index ended 1.2 percent lower.
Shares in fellow Italian lender Monte dei Paschi were suspended once again, and Italy's economy minister said the actual amount for the government's recapitalisation of the bank would depend on the lender's new industrial plan.
Credit Suisse fell 3.4 percent after a media report said the U.S. Securities and Exchange Commission was investigating the sale of $850 million in bonds issued by Mozambique by Credit Suisse, Russia's VTB Group and BNP Paribas . BNP Paribas shares dropped 1.3 percent.
The STOXX 600 ended 0.4 percent lower, the biggest one-day drop since Dec. 14. Volumes were only half of its 90-day daily average.
Although precious metals miners were in demand, the broader European basic resources index dropped 0.9 percent as base metals miners tracked prices of industrial metals such as copper an aluminium, which fell on concerns about a liquidity crunch in top consumer China. (Reporting by Atul Prakash and Kit Rees; Editing by Janet Lawrence)