By Dominic Lau

LONDON (Reuters) - The leading share index rose 1.3 percent on Thursday as data showing the U.S. economy grew stronger than initially estimated in the second quarter boosted financials and retailers, while acquisition talk lifted grocer Sainsbury.

The FTSE 100 closed up 73.1 points at 5,601.2, hitting its highest closing level in two months and extending the previous session's 1.1 percent gains.

"The better-than-expected data out of the U.S. is helping the market today," said Darren Winder, equity strategist at Cazenove.

"The other thing helping the market fundamentally is that the yield on 10-year gilt is now down to 4.5 percent, so the hurdle for equities to climb to match the yield on bonds is falling."

He said investors would continue to be concerned about readings on the economy, which have been mixed.

"We have got the weak economic conditions to contend with but the market has been expecting that for so long, so they are not really coming in as a surprise to equity investors," he said.

Banks were the top-weighted gainers, with HBOS, Barclays, Royal Bank of Scotland, HBSC, Lloyds TSB and Standard Chartered

rising 2.5 to 5.8 percent.