Beaten-down banks lead FTSE higher

A dealer monitors her screens on the trading floor of IG Index in London May 6, 2010.

LONDON (Reuters) - The top share index edged higher on Thursday helped by a bounce in several heavyweight banking stocks including HSBC (HSBA.L), although volumes were once again low and chart support for the move remained weak.

After falling 2.5 percent in the previous 3 sessions to near a technically oversold level, the bank, in focus during a U.S. Senate hearing on money laundering that some analysts said could result in a $1 billion fine, rose 0.6 percent.

Fellow Asian-focused peer Standard Chartered (STAN.L) led sector gainers, however, with a gain of 2.3 percent.

"Banks are recovering from a few difficult trading sessions regarding the issues with (banks allegedly rigging) Libor and HSBC more recently," said Michael Symonds, a strategist at 1Daiwa Capital Markets.

The cyclical sector led the market higher, adding a total of 8.7 points to the broader FTSE 100 .FTSE, which ended up 0.5 percent, or 28.42 points, at 5,714.19 points.

The index had struggled to breach and hold above 5,700 points during the last two weeks and in spite of doing so on Thursday, Dmytro Bondar, a technical analyst at RBS, cautioned of the potential for a marked slide in the coming days.

"It has been in this upper-sloping bearish channel since the beginning of June ... What is important is that it stays within the channel as once the price falls below the lower limit and we get a few negative days, it could be a trigger for a major sell-off," he said.

In spite of the market gains, volumes were low at just 79 percent of the already weak 90-day daily average.

MINERS

Miners added their weight to the index gains and continued a recent recovery, led by Rio Tinto (RIO.L), up 1.7 percent and BHP Billiton (BLT.L), up 1.4 percent, helped by gains across the base metals complex on hopes for fresh China stimulus.

"Miners are doing well because copper has had a very good run today, that's mainly based on hopes of more easing in China over the weekend," said Ioan Smith, a strategist at Knight Capital.

Emerging markets were a key factor dragging the worst-hit sector, integrated oils, lower after gas firm BG Group (BG.L), down 2.1 percent, was hit by a Credit Suisse downgrade to "neutral" from "outperform" on the back of production headwinds in Brazil.

"We are particularly concerned about the key area of growth - Brazil - given its importance to value and the well-known supply chain issues in the local market," its analysts wrote in a note.

"BG's investment case is now about execution to deliver on its growth targets to 2020 from Brazil and Australia. Capturing the value identified in exploration is challenging due to the risk of: (a) cost overruns and (b) late delivery," they added.

The biggest drag on the index, however, was telecommunications company Vodafone Group Plc (VOD.L), which saw a sharp drop in its share price towards the end of the session after hopes for a special dividend from its U.S. joint venture dimmed.

The fall came after a Verizon executive said that the distribution of a dividend payment to Vodafone from their joint Verizon Wireless venture would not be discussed the firm's next quarterly board meeting.

Vodafone stock, which had been bid up in anticipation of the dividend, fell 1.2 percent in heavy volume of more than one and a half times its 90-day daily average to take 4.2 points off the index.

UK retailers, fighting to hold onto sales in a recession-hit market, were also among the top fallers, with Kingfisher (KGF.L) down 1.3 percent after a weak update in which it said sales had been hit by poor summer weather.

UK retail sales data for June came in weaker than expected on Thursday, the Office for National Statistics said.

(Editing by Simon Jessop)