* FTSE 100 closes up 0.2 percent
* Set for weekly loss as profit warnings weigh
* Miner Fresnillo downgraded on improved price
* Banks rise after U.S. Senate passes blueprint for tax cuts
* Interserve gets boost from contract win (Releads with closing prices, adds Brexit talk developments, Fresnillo)
LONDON, Oct 20 (Reuters) - Britain's FTSE closed up 0.2 percent on Friday as sterling bounced back on hopes of a breakthrough in Brexit negotiations, and consumer heavyweights Unilever and Reckitt Benckiser weighed down an index that was earlier lifted by financials.
The FTSE 100, which hit a record level last week, was on track for a slight weekly loss after four weeks of robust gains, bruised by sharp drops earlier in the week from Convatec and Merlin.
British Prime Minister Theresa May won a modest reprieve in stalled talks with the European Union as EU leaders said they would begin preparations to move into the second phase of Brexit talks in December.
The pound strengthened to 89.295 pence per euro, having earlier dipped to its weakest since Oct. 12. That left it up 0.8 percent on the day.
Unilever and Reckitt were among the leading decliners after weak results earlier this week, closing down 3.2 and 2.7 percent respectively.
"When companies disappoint they're getting properly spanked. In the big stocks Unilever has been particularly weak after results. The market is in an unforgiving mood," said Eric Moore, income fund manager at Miton Group.
Miner Fresnillo was the top FTSE 100 loser, closing 3.6 percent lower, after a downgrade to "neutral" from top-ranked Credit Suisse analyst Ivano Westin on the grounds that it was now well-priced.
Like fellow miners Antofagasta, Glencore and Rio Tinto, it has been lifted by London copper prices, on track for their fourth weekly gain and fresh from three-year highs.
Standard Chartered and RSA Insurance were among the biggest boosts to the index, up 3.1 and 2.4 percent, after the U.S. Senate passed a budget blueprint seen as a key step towards tax cuts that the market hopes will aid financials.
Mid-caps closed up 0.1 percent, recovering from their worst day in a month when workspace group IWG slumped 34 percent after results. The FTSE 250 hit a record close on Wednesday.
"It's quite surprising how well the FTSE 250 has held up since the referendum," said Rachel Winter, senior investment manager at Kiillik & Co. "If I were a company exposed just to the UK I would not be investing and expanding at the moment."
"Most UK fund managers are overweight the mid-caps, so if we do see a lot of profit warnings we might see them re-assessing how much they want to hold companies there," she added.
Shares in Acacia Mining fell back 8.1 percent after third-quarter earnings came in below consensus estimates.
The gold miner had soared 16 percent on Thursday after its owner Barrick Gold struck a deal with the Tanzanian government to settle a tax dispute. But Acacia said on Friday it would need to approve the deal and was seeking further clarification.
"We expect quarterly earnings to be largely looked through as investors focus on gaining more clarity following yesterday's announcements," said Jefferies analysts.
Small-cap Interserve, which also plummeted on Thursday after a profit warning, jumped back 16.8 percent after the support services firm won a 227 million pound ($299 million)contract with the British government.
Overall analysts have downgraded their earnings expectations for the FTSE 100 into third-quarter results as a boost from sterling's depreciation fades. ($1 = 0.7586 pounds)
(Reporting by Helen Reid and Georgina Prodhan; Editing by Matthew Mpoke Bigg)