Banks, commodities lift FTSE up 2.5% by midday

                                
 * Banks up on Barclays results, U.S. bank optimism
                                
 * Improving capital base sends Old Mutual higher
                                
 * Unilever rises on higher Q1 sales
* BoE policy decision due out at 1100 GMT
                                
 
                                
 By Dominic Lau
                                
 LONDON, May 7 (Reuters) - Britain's top share index rose 2.5
percent by midday on Thursday, as financials gained on robust
results from Barclays <BARC.L> and increased optimism for U.S.
banks, while commodity stocks tracked firmer raw material
prices.
                                
 By 1005 GMT, the FTSE 100 <.FTSE> was up 108.47 points at
4,504.96, on course for a third straight day of gains. The UK
benchmark index is up 1.5 percent for the year after rallying 30
percent since hitting a six-year low on March 9.
                                
 The BoE looked set to leave interest rates at a record low
when it announces its decision at 1100 GMT and is not expected
to give much away about the future of its asset purchase scheme
ahead of new growth and inflation forecasts next week.
                                
 The European Central Bank will also decide on interest rates
on Thursday.
                                
 Banks were among the standout gainers after Barclays said
its first-quarter profit rose 15 percent from a year ago.
[ID:nL7204458]
                                
 Financials were also bolstered after U.S. Treasury Secretary
Timothy Geithner said none of the 19 banks being examined under
stress tests is at risk of insolvency. The results of the U.S.
bank stress tests are set to be unveiled later on Thursday.
                                
 Barclays gained 2.1 percent, while HSBC <HSBA.L> rose 5.6
percent and Standard Chartered <STAN.L> strengthened 4.1
percent.
                                
 Lloyds Banking Group <LLOY.L>, however, sank 9.5 percent
after the part-nationalised lender said impairment charges were
rising significantly as it reiterated it would report a loss
before tax for 2009. [ID:nL7349308]
                                
 Royal Bank of Scotland <RBS.L> eased 3.3 percent.
                                
 "Investors have been climbing a wall of worries lately,"
said David Morrison, market strategist at GFT Global Markets.
"The higher we go more people and more traders will be pulled
into this rally for fears of missing a bigger gain to come."
 Morrison, however, said the market needed to see some
consolidation from a technical view point.
                                
 "At the moment everything is looking good. We are not
expecting any nasty surprises from the stress tests, we are
looking forward to good figures from the non-farm payrolls in
the States," he said. "It wouldn't take much to upset traders
and maybe get people to take profit or even reverse their
positions."
                                
 Within the financial sector, Old Mutual <OML.L> jumped 8.4
percent after the life insurer said its pro-forma Financial
Groups Directive (FGD) surplus stood at 0.9 billion pounds at
the end of March, up from 0.7 billion at the end of December.
                                
 Peers Legal & General <LGEN.L>, Prudential <PRU.L> and Aviva
<AV.L> strengthened 3.9 percent to 10.9 percent.
                                
 
                                
 UNILEVER, COMMODITIES SHINE
                                
 Miners were higher on stronger metal prices and a bullish
note from Barclays Capital. BHP Billiton <BLT.L>, Rio Tinto
<RIO.L>, Kazakhmys <KAZ.L>, Xstrata <XTA.L>, Anglo American
<AAL.L> and Fresnillo <FRES.L> rose between 2.7 percent and 5.1
percent.
                                
 Vedanta Resources <VED.L>, however, dipped 0.4 percent. The
miner posted a 75 percent drop in attributable profit after
commodity prices slid, but kept its final dividend unchanged.
                                
 Index heavyweight oil producers were also in demand, aided
by firmer crude prices <CLc1>. BP <BP.L>, Royal Dutch Shell
<RDSa.L>, BG Group <BG.L> and Tullow Oil <TLW.L> put on 1
percent to 3.9 percent.
                                
 Among other individual movers, Unilever <ULVR.L> surged 8.8
percent after the consumer goods giant reported a 4.8 percent
rise in first-quarter underlying sales and said it plans to step
up innovation and brand support from the second quarter.
                                
 Diageo <DGE.L> rose 3.7 percent after the world's biggest
spirits group reported flat underlying sales for the nine months
to March 31 while holding its full-year forecast for operating
profits growth of 4 to 6 percent.
                                
 Rexam <REX.L>, the world's biggest maker of drinks cans,
shed 4.6 percent. The company said organic first-quarter
performance was weaker but currency effects meant underlying
operating profit was broadly in line with last year.
                                
 (Editing by Elaine Hardcastle)