* FTSE 100 up 0.3 pct
* Banks rally on euro zone hopes
* GlaxoSmithKline biggest index drag after results
By Viktoria Dendrinou
LONDON, July 25 (Reuters) - Britain's top share index edged higher on Wednesday, lifted by banking stocks after European Central Bank policymaker Ewald Nowotny raised the prospect of steps that could boost the firepower of the euro zone's new bailout fund.
At 1057 GMT, the FTSE 100 index was up 15.09 points, or 0.3 percent, at 5,515.12 points, halting a three-session losing streak. Volume was once again weak, however, at around one fifth of its 90-day daily average.
Banks, proved the biggest support to the index, rising 1.7 percent, in line with the STOXX Europe 600 Banking index, after Nowotny said there are arguments for giving Europe's permanent rescue fund a banking license, an idea that the European Central Bank has rejected so far.
That helped spark a rebound across Europe, particularly in the heavily sold indexes of Spain and Italy.
"(The) bounce off the bottom is not surprising. Banks have fallen off a long way in a short space of time over the last few weeks, and now that Spain and Italy are doing better, the euro related exposed companies are doing better on the back of that", said Shore capital equity strategist Gerard Lane.
The heavyweight sector will remain in focus this week as earnings reports are due from Lloyds and Barclays .
Earnings reports in other sectors were a major feature across the broader FTSE 100, with ARM Holdings, up 6.2 percent, the top gainer trading in high volume of more than 80 percent of its 90-day daily average, as the chip designer's results beat market expectations as demand for its low power chips in smartphones and tablets outstripped the industry.
Much of the corporate earnings news proved cause to sell, however.
BT, down 4.8 percent, was among the FTSE's worst performers, sliding to its lowest level in nearly a month after the British telecom group's first quarter results come in below analysts' forecasts.
"BT has reported its Q1 results, which look a little soft," Espirito Santo Investment Bank analysts wrote in a research note, adding that BT's revenues missed the bank's estimates by 2.1 percent.
Johnson Matthey, 3.3 percent, was another big FTSE 100 faller, after the British chemicals company posted a virtually flat first quarter on the back of weak precious metals prices, prompting worries it could miss market forecasts for the first half. [ID: nL6E8IP23N]
Biggest drag on the index, however, was pharma giant GlaxoSmithKline, down 2.1 percent after it warned sales in 2012 would be flat as pressure on drug prices intensifies in Europe, due to government austerity measures aimed at curbing healthcare budgets.
The pharmaceuticals heavyweight shaved 7.5 points off the index, after it reported that overall turnover was down 4 percent from the same period a year ago, while sales in Europe slumped 8 percent in the quarter. (Editing by Simon Jessop; editing by Ron Askew)