FTSE ends up 2.5 percent

By Atul Prakash

LONDON (Reuters) - The FTSE 100 index closed sharply higher on Tuesday, as better-than-expected results from Standard Chartered (STAN.L) cheered battered banks and falling crude prices eased inflation concerns.

The commodity-heavy index .FTSE closed up 134.3 points, or 2.5 percent, at 5,454.5, snapping a three-session losing run, though the benchmark index is still down 16 percent so far this year.

"Today's strong performance is very much the result of weakening oil prices (but) should we be optimistic going forward?," said Tim Hughes, head of sales trading at IG Index.

"If the pessimism of late has been largely driven by the exponential growth in the oil price and oil continues to ease, then that is a boost to a majority of companies operating which are threatened by persistently higher oil prices."

Banks topped the FTSE gainers list, with Standard Chartered surging 8 percent after a 31 percent jump in first-half profit. The bank said although Asian growth was likely to slow, it would continue to easily outpace western economies.

Royal Bank of Scotland (RBS.L) gained 7.2 percent, Barclays (BARC.L) was up 8.8 percent, HBOS HBOS.L soared 12 percent and Lloyds TSB (LLOY.L) spiked 10.7 percent. Banks across Europe were also helped by results from Societe Generale (SOGN.PA) which were not as bad as feared.

Elsewhere Swiss Re (RUKN.VX), the world's largest reinsurer, agreed to buy Barclays' life assurance portfolio for 753 million pounds in cash.

"If oil continues to weaken, it is a bit of a stimulus for the economy. It takes the heat off bad debt for the banks," said Mike Lenhoff, chief strategist at Brewin Dolphin.