(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Diploma surges on upbeat annual result outlook

* UK reopens for business, but caution remains

* FTSE 100 down 0.1%, FTSE 250 down 0.4%

May 17 (Reuters) - London's FTSE 100 edged lower on Monday, dragged by banks and industrial stocks, while shares of Diploma Plc jumped after the company gave an upbeat earnings update.

The blue-chip index fell 0.1% as banks, mainly HSBC Holdings, Prudential Financial and Barclays , declined between 0.8% and 1.2%.

The Travel & Leisure index dropped 1.4%.

The domestically focused FTSE 250 index fell 0.4%. But shares of technical products and services provider Diploma jumped 6.8% to the top of index after it forecast annual results ahead of expectations.

"With the UK economy now close to being fully reopened again, further growth relies more heavily on optimism- both COVID safety and economic - staying supported," said James Smith, Developed Markets Economist at ING.

"The more interesting question though is what difference the noise surrounding the new variant makes to confidence. Data over recent weeks indicate consumers and businesses are much more optimistic than they were last summer."

Most Britons were free once again to hug, drink in pubs, sit down to an indoor meal or visit the cinema after a series of lockdowns that imposed the strictest restrictions in peacetime history.

However, Prime Minister Boris Johnson served notice that the spread of the coronavirus variant first identified in India meant that the final stage of reopening, scheduled for June, could be delayed.

After rising 8.9% this year, the FTSE 100 has pared some of those gains in the last few sessions on concerns around resurgence in virus cases across the globe and sooner-than-expected tightening of ultra-loose monetary policy to curb inflation.

Among other stocks, homebuilder Vistry Group slid 1.0%, even after raising its annual profit forecast on strong demand.

Novacyt jumped 6.1% after the French biotechnology group said Britain's National Health Service would use its product for detecting COVID-19. (Reporting by Shivani Kumaresan and Devik Jain in Bengaluru; editing by Uttaresh.V and Alex Richardson)