* FTSE up 1 percent
* Man Group inspire asset manager rally after results
* Banks rebound but risk premium erodes
* Cable & Wireless Worldwide jumps on Tata interest
By David Brett
LONDON, March 1 (Reuters) - Banks and other financial stocks, buoyed by central bank infusions of money into the system, helped Britain's top share index rebound on Thursday with fund manager Man Group, surging after it reported client outflows have slowed.
London's blue-chip index closed up 59.74 points, or 1 percent, at 5,931.25, erasing the 1 percent drop on Wednesday after downbeat comments on the U.S. economy from Federal Reserve Chairman Ben Bernanke.
U.S. data on Thursday was mixed. Figures showed the U.S. labor market healing but real spending was stagnant, while the manufacturing sector growth unexpectedly slowed in February.
"The ongoing moderate recovery in the U.S. economy is still well in place and we would not read today's decline in the ISM as a sign of loss of momentum," Annalisa Piazza, analyst at Newedge Strategy, said.
Top gainer on the Britain's FTSE 100 was Man Group, up 12.7 percent, after the world's biggest listed hedge fund firm eased investors' concerns over its recent fund outflows and said clients could begin to return after recent heavy withdrawals.
Worries over Man hemorrhaging funds has seen its share price halve over the past year, but the results provided a boost for other asset managers, with Schroders, Hargreaves Lansdown and Ashmore all up more than 1.7 percent.
Equity derivative strategists at BNP Paribas said the flow of funds still favours cyclicals outperforming defensives, with inflows into bonds (sovereign and corporate) and cyclical/financial sectors outpacing flows into equities and defensive sectors.
"The higher the outperformance, the greater the need for portfolio rebalancing/asset allocation. The trend continues to be your friend for now," BNP Paribas said.
That was echoed in the performance of UK-listed banks , which have gained more than 30 percent since their November trough and were the strongest risers on Thursday following the fresh injection of cheap liquidity by the European Central Bank in the previous session.
BNP Paribas, however, said the two shots of three-year long- term money by the ECB, has prompted the risk premium across equities to plunge, meaning shares are looking less cheap.
"The 'gravitational pull' exerted by de-leveraging pressures seems to have succumbed to unprecedented flush of liquidity. With the very dovish tones by the FED, BOE and BOJ, one should expect the path of least resistance for risk premium to be down (still)," it said.
The tidal wave of liquidity has also driven down volatility as investors have become more convinced the financial system can be saved from collapse, with some analysts saying the extra cash should allow banks to deleverage in a more orderly fashion, therefore protecting the value of assets on their balance sheets.
Barclays gained 2.5 percent, but RBS underperformed, falling 0.6 percent as Berenberg Bank double-downgraded the part state-owned UK lender to "sell" from "buy" as it cut ratings, target prices and estimates across the sector in a review of the UK banks.
The loose monetary policy environment has encouraged businesses to build huge cash piles, and with the macro economic environment improving and valuations still historically cheap companies are beginning to hunt for bargains.
Cable & Wireless Worldwide which has fallen 70 percent over the past year after a string of profit warnings, rose 14.7 percent as India's Tata Communications said it was considering a bid for the firm in a move that could set up a takeover battle for the $1.2 billion British telecoms group with mobile phone giant Vodafone.
WPP gained 3 percent as the advertising group posted a better-than-expected 19 percent rise in 2011 profit and reaffirmed its targets for 2012, prompting BofA Merrill Lynch to raise its estimates and target price.
ITV, Britain's biggest free-to-air commercial broadcaster, advanced 2.1 percent as several brokers raised their price targets for the stock following strong results on Wednesday.
Copper miner Kazakhmys fell 4.2 percent after posting a flat core profit for 2011 as production costs, including soaring wages for skilled workers in Kazakhstan, offset stronger metal prices.
And Weir Group shed 3.6 percent as technical factors weigh on the shares and Panmure Gordon downgrades its rating to "hold" from "buy" and cuts its estimates post results.
Written by David Brett; Editing by Erica Billingham