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UPDATE 1-RBS, Sterling supports FTSE as IAG, miners drag on UK index

* FTSE 100 up 0.4 pct

* British Airways owner IAG results disappoint

* Profit beat, strong capital ratio boost RBS

* Miners fall as China cuts steel capacity

* Tullow Oil sinks on exploration fail (Adds closing prices)

LONDON, Oct 27 (Reuters) - British stocks followed European indexes higher on Friday, driven by a weakening pound and a rise in RBS, which helped outweigh falls among mining stocks and British Airways owner IAG.

The FTSE 100 closed up 0.3 percent with sterling slipping to a three-week low against the dollar as doubts grew that a Bank of England rate rise expected next week would signal the start of a series of hikes.

RBS shares were up 1.7 percent after the state-owned bank beat expectations with strong third-quarter profit and a more robust capital ratio.

Shore Capital analysts said this provided a buffer to absorb further potential litigation costs, with a dispute with the U.S. Department of Justice over mortgage-backed securities ongoing.

"Once this has been dealt with it should pave the way for the group to return to statutory profitability (hopefully during 2018) and ultimately recommence dividend payments," they said.

British Airways owner IAG was the top faller, down 6.9 percent, as strong earnings and revenue performance were overshadowed by passenger growth figures.

"The growth rate is more muted than the wider sector, suggesting a loss of market share," Bernstein analyst Daniel Roeska said in a note following IAG's results.

Liberum analysts noted passenger unit revenue for the carrier grew at a slower rate than at Lufthansa.

Shares in rival budget airlines easyJet and Wizz Air also fell 3.2 percent and 2.8 percent respectively.

"There's been a big disparity between companies with good earnings getting rewarded and then poor earnings and cautious guidance getting slammed," Rory McPherson, head of investment strategy at Psigma, said.

"It's a market getting towards pretty lofty levels, so any disappointment is clearly penalised," he added.

Chinese cuts to steel capacity weighed on commodities prices, sending mining stocks Anglo American, Antofagasta, BHP Billiton, Rio Tinto and Glencore down between 0.3 percent and 3.1 percent.

Mid-cap miners Evraz, Kaz Minerals and Ferrexpo also fell 1 percent, 3.8 percent and 4.8 percent respectively.

Among mid-caps Tullow Oil shares also dropped 2.4 percent after the group said it plugged and abandoned its Araku-1 well in Suriname after failing to strike oil.

(Reporting by Helen Reid and Julien Ponthus; editing by Alexander Smith)