UPDATE 1-Pound holds back Britain's FTSE in Brexit breakthrough rally

* UK shares underperform European peers

* Financials boost index after new Basel rules

* Housebuilders rise after Berkeley results (Adds comments, background)

LONDON, Dec 8 (Reuters) - British shares lagged their European peers in a rally fueled by a breakthrough in Brexit talks, as the pound held its ground against the dollar and reached a 6-month high against the euro.

The blue chip FTSE 100 index was up 0.27 percent at 0945 GMT while the pan-European STOXX rose 0.86 percent with all bourses across the continent and most sectors trading in positive territory.

The pound had risen over 1 percent against the greenback on expectations the European Commission and Britain would agree to move Brexit divorce talks to trade and stuck to most of its gains after the deal was announced early on Friday morning.

"This has had a dampening effect on the FTSE," said Richard Stone, CEO of online trading platform Share, arguing however that sterling's immediate impact on shares should not eclipse the fact that the deal constituted "good news" for the British economy in the long run.

The fall in sterling since the June 2016 Brexit vote has given an accounting boost to UK blue chips with revenues in dollars, and a weak pound typically supports the FTSE.

Stone noted that the FTSE 250, whose smaller and more domestically focused constituents typically earn less of their revenues overseas, was actually rising higher than the FTSE, up 0.37 percent.

Financials provided a big share of the gains of the FTSE, after new global banking regulations, seen as kinder to European banks than feared, were adopted.

"This is a big positive for all European banks which should now be able to quantify excess capital and M&A budgets in due course," said Citi analysts in a note.

Lloyds rose 4 percent, Barclays 3 percent and RBS 1.6 percent.

British housebuilder Berkeley was the top gainer of the index, surging 8.4 percent, after it announced a 36 percent rise in first half profits.

"The strong cash generation likely means year end net cash will be materially above consensus expectations of about 400 million pounds," UBS analysts commented, adding the group had the options of "acquiring land as opportunities arise or return more cash to shareholders."

Other UK builders, which have suffered on fears Brexit would hurt the sector, also rose.

Persimmon added 2.6 percent, Barratt Developments 3.2 percent and Taylor Wimpey 2.3 percent. (Reporting by Julien Ponthus; Editing by Georgina Prodhan)