* FTSE 100 up 0.4 percent
* Cyclical sectors boosted after Spain and France sell bonds
* Aggreko surges as top risers promise investor returns
* Bank of England policy decision due 1200 GMT
By Alistair Smout
LONDON, March 7 (Reuters) - Britain’s top share index rose on Thursday, extending gains after successful bond auctions in the euro zone helped riskier sectors to post gains.
Cyclical stocks, which rise and fall with investor confidence about the economy, gained after heavily indebted Spain hit the top end of its fund-raising target in a bond sale on Thursday, with yields at a French bond auction also falling.
“The success of the Spanish and French bond auctions have helped stocks extend gains today. It’s a good example of institutional investors showing support to a euro zone which previously they’d left behind,” Matt Basi, head of sales trading at CMC Markets, said.
The FTSE 100 had been up just 0.1 percent ahead of the auctions, before extending its gains to be up by 0.5 percent an hour later.
The cyclical sectors of basic materials, which includes heavyweight miners, financials and energy, combined to add over 18 points to the index.
The broad-based gains extended to more defensive sectors, with consumer staples such as Unilever and Reckitt Benckiser among the top gainers.
Credit Suisse raised target prices on consumer staples under its coverage by up to 20 percent, arguing that the sector was not expensive.
By 1103 GMT, London’s blue chips were up 27.69 points, or 0.4 percent, to 6,455.33, taking their cue at the open from strength overnight in the United States, where the Dow Jones Industrial Average . ended at another record high after some positive job figures.
While the Dow on Wall Street continues to set fresh all time highs, London’s FTSE 100 remains around 4.5 percent off records struck in 2007.
With the global economy still recovering, markets are relying on support from central banks’ loose monetary policy, which is suppressing yields in bonds and other asset classes.
The top individual risers on the FTSE 100 were those companies promising higher returns to investors.
The world’s biggest temporary power provider, Britain’s Aggreko, rose 14.5 percent after raising its dividend by 15 percent, with profit up 11 percent.
Engineer IMI also gained, up 5 percent after it said it planned to buy back up to 175 million pounds ($263 million) of its shares over the next 12 months.
Life insurer Aviva, however, tumbled 12 percent after it cut its dividend by over a quarter to provide extra funds for a turnaround strategy aimed at bolstering capital and profit.
The Bank of England is expected to hold interest rates at a record low 0.5 percent at 1200 GMT, although chances are rising that the BoE will decide to start buying assets again to support a weak economy.
“With the country’s AAA rating now shot and political tensions rising over the sluggish return to growth that’s being seen, we’ve already noted a sway of opinion at the BoE to increasing stimulus measures,” Mike McCudden, head of derivatives at stockbroker Interactive Investor, said in a trading note.
“Against this backdrop at some point it would seem likely that attempts will be made to add more fuel to the fire.” ($1 = 0.6643 British pounds) (Additional reporting by Toni Vorobyova and David Brett; Editing by Ruth Pitchford)