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* FTSE 100 down 0.2 pct
* UK blue chips set for worst month since Jan 2016
* Oil stocks, miners add pressure
* United Utilities falls after downgrade
By Kit Rees
LONDON, June 30 (Reuters) - A drop among oil stocks, miners and by United Utilities kept the UK's top share index in negative territory on Friday as it headed for its biggest monthly loss since January 2016.
The blue FTSE 100 index was down 0.2 percent at 7,335.21 points by 0848 GMT, underperforming a slightly positive European market.
The FTSE 100's heavy weighting towards the resources sectors has hindered its progress over the past month as the price of oil slid to a 7-month low.
Oil majors Royal Dutch Shell and BP were down 1.3 percent and 1.6 percent respectively, while miner Glencore also dropped 1.4 percent.
Worries over central banks hinting that a tightening of monetary policy could be on horizon have also been a key focus this week, hitting shares in defensive, dividend-paying stocks such as utilities and pharma firms, whose dividends become less attractive when bond yields rise.
"The market has decided that we are entering an environment where borrowing costs are going to start to rise," said Ken Odeluga, market analyst at City Index.
"That has a lot of implications for debt-dependent, capital-intensive industries, for industries which tend to run a weak or negative cash profile," Odeluga said, adding that, as many of the UK blue chips tend to be low-growth, high-yielding, value stocks, the recent rotation could be beneficial for the FTSE.
United Utilities was the biggest blue chip faller, down 2.5 percent following a downgrade to "underperform" from Credit Suisse.
"We think bond yields are equally likely to rise over the coming five-year period. This would exacerbate the valuation impact of the cut to returns," analysts at Credit Suisse said in a note, referring to the broader water utilities sector.
"Financing risk is borne by companies, and while this has led to windfall profits over the past two regulatory cycles, the dynamic could very well reverse."
British utilities had been under particular pressure this month in the run-up to the UK general election, with proposed policies around price caps weighing on the shares.
Severn Trent, National Grid and United Utilities were among the worst-performing stocks in June, all losing more than 12 percent this month.
The last three months have also been lacklustre for the FTSE, which was set to end Q2 roughly flat, following four quarters of consecutive gains as sterling's post-Brexit vote plunge boosted dollar-earning blue chips.
Among mid caps, which were up 0.1 percent, shares in Greene King were among the biggest fallers. They dropped more than 4 percent after JPMorgan downgraded its rating on the pub operator to "neutral", and several other brokers cut their price targets for the stock, following Greene King's full year update in the previous session. (Reporting by Kit Rees; Editing by Keith Weir)