By Simon Falush

LONDON (Reuters) - The index of leading shares ended steady on Thursday as higher commodity prices drove mining and oil companies higher, cancelling out losses in the ailing financial sector.

The FTSE 100 .FTSE closed down 1.6 points at 5,370.2, outperforming major European indexes because of the heavy weighting in commodity stocks.

Mining stocks were buoyed by gold prices hitting a one-week high while oil producers were bolstered by crude rallying by over 5 percent to more than $121 per barrel, up from less than $112 a barrel on Tuesday.

"Oil's had an absolute humdinging couple of days, and it seems as though people were premature in saying the oil story is over," said Jim Wood-Smith, head of research at Williams de Broe in Exeter.

"The stocks that everyone has loved to hate over the last couple of months are the only thing that is keeping the index up."

These gains saw the FTSE 100 wipe early losses as banking stocks slid on renewed credit worries.

Banks took more than 19 points off the index on renewed credit jitters. Barclays (BARC.L: Quote, Profile, Research), Royal Bank of Scotland (RBS.L: Quote, Profile, Research), HSBC (HSBA.L: Quote, Profile, Research), HBOS HBOS.L, Lloyds TSB (LLOY.L: Quote, Profile, Research) and Standard Chartered (STAN.L: Quote, Profile, Research) shed between 0.5 and 3.5 percent.

On Wall Street on Wednesday, Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) shares plunged to their lowest levels in almost 20 years, while the mortgage companies' bonds rallied on the belief an increasingly likely government bailout would wipe out shareholders but secure their massive debt.