In "La Belle Dame Sans Merci," how was the knight deceived by the lady?

The key word in the question is "lovely." The knight has been utterly bewitched by the fairy's enchanting beauty, so much so that he seems on the very edge of death. The fairy's magical kisses render him insensible, making it impossible for him to think about anything else, so totally enraptured has he become by this vision of loveliness.

But it's not just the fairy's comely appearance that entraps the hapless knight: the sheer loveliness of her fairy-song also plays its part. The siren song's sweet melody has much the same effect on the palely, loitering knight as the original siren song of Greek mythology did upon Odysseus. Odysseus, however, was saved from the Sirens' dangerously seductive song by being strapped to his ship's mast. The knight in "La Belle Dame sans Merci" has no such protection. And so he finds himself, like so many others before him, cruelly discarded and abandoned by this mysterious, yet still utterly beguiling, femme fatale.

If we examine the poem carefully we can see that the fairy-lady that the knight meets and is so taken by is responsible for deceiving the poor, unsuspecting knight by clearly leading him on and pretending to have more affection and love for him than she actually feels. Note what the following stanza reveals about her behaviour towards the knight:

She loooked at me as she did love,
And made sweet moan.

This is one example of the way in which the lady gave the knight expectations of her love and desire for him. Note the way that there is almost a sexual connotation in "made sweet moan" which, through its onomatopoeia, seems to capture the sexual desire and frisson between the pair. Of course, as the rest of the poem shows, this is just a deception designed to entrap the knight in the lady's snare, which is evident by the fact that the knight is still wandering around, suffering from unrequited love, when nature itself is abandoning the scene.

In "La Belle Dame Sans Merci," how did the lady show her love for the knight?

It is clear that the mysterious lady gave every appearance of loving the knight through her body langauge and what she said, if you can consider the "sweet moan" to be language. However, as #2 makes clear, it is pretty obvious that this is just an act of the lady. She wants to lull the knight into a false sense of security so she can seduce him and lure him into the trap which so many other men have fallen. Keats gives us an excellent image of a femme fatale in this poem that seeks out and tries to ensnare gullible chivalrous males with her charms.

"She looked at me as she did love,/And made sweet moan" is interpreted by the knight as the lady's indication of love.  However, "as she did love" really means as if she were in love; so the lady is really not in love.  She simply feigns love and seduces the knight by giving him "manna dew" and tells him "I love thee true." 

As the poem concludes, the reader realizes that the "faery child" has merely lured the knight to the same place that the other pale knights are doomed to be.