By Atul Prakash

LONDON (Reuters) - The FTSE share index ended 1.2 percent higher on Tuesday, as results from the largest U.S. investment bank Goldman Sachs helped lift banking stocks, while firm commodity prices boosted the mining and oil sectors.

The FTSE 100 closed up 67.3 points at 5,861.9, with investors interpreting Goldman's results as meaning the financial sector outlook was not that grim.

Barclays rose 3.5 percent, while HSBC edged up 0.2 percent.

Goldman said quarterly earnings fell 11 percent as turmoil in debt markets slowed investment banking activity and eroded trading profit, but the results were encouraging during the worst environment seen in decades.

Goldman largely avoided the massive losses that have hit Lehman Brothers Holdings Inc and other rivals, but business overall has slowed from last year's record levels.

"The market basically rallies on the back of the Goldman Sachs figures. They were pretty good," said Jawaid Afsar, a trader at Securequity.

"There was a relief for the financials ... obviously taking a new leg higher. The economic data coming (from) the U.S. are pretty much in line," he added.

A higher-than-expected reading of overall U.S. producer prices failed to dent the market's gains, with traders focusing instead on data showing core inflation, which excludes volatile food and energy prices, moderated as economists had forecast..