* FTSE 100 up 1.3 pct
* Banks supported by US Senate passing bailout bill
* Oils, miners up; shrug off weaker commodity prices
By Simon Falush
LONDON, Oct 2 (Reuters) - Britain's top share index gained
1.3 percent by midday on Thursday as the U.S. Senate approval of
a $700 billion bank bailout plan calmed investor nerves about
the health of the UK's struggling financial sector.
By 1049 GMT, the FTSE 100 <> was up 60.6 points at
5,020.2, having gained 1.2 percent on Wednesday. However the
index is still down 22.1 percent on the year.
Investors remained cautious over continuing doubts about
whether Congress will pass the bill and anxiety about the health
of the banking sector and the wider global economy.
"I think (the bailout plan) will go through, but the market
is in limbo while we wait for the House of Representatives to do
it right the second time," said Tim Rees, director of UK
equities at Insight Investment.
"But the issue is whether it resolves the problem that
deleveraging the economy will create, and the fundamentals
continue to be difficult."
Banks were well into positive territory, recovering some of
the heavy losses they have suffered since the demise of Lehman
Brothers last month ratcheted up fears on the health of the
global financial system.
HBOS <HBOS.L> topped the leader board, gaining 19 percent on
mounting confidence its proposed takeover of Lloyds TSB <LLOY.L>
will go ahead. Lloyds rose 6.3 percent.
Barclays <BARC.L> gained 4 percent and Royal Bank of
Scotland <RBS.L> gained 2.8 percent.
Investors were awaiting a decision from the European Central
Bank on interest rates at 1145 GMT with banking problems in the
euro zone putting pressure on the central bank to cut interest
rates.
HOUSE PRICE SLIDE
Underlining the precarious state of the economy, UK house
prices fell 1.7 percent in September to post their biggest
annual drop since comparable records began in 1991, the
Nationwide building society said.
In further bleak news for the economy, the construction
sector shrank for a seventh straight month as commercial
activity fell at the fastest pace since the series began in
1997.
FTSE 250 <> listed housebuilders fared relatively well,
however, clawing back some of the hefty losses of recent months.
Taylor Wimpey <TW.L> was up 5.6 percent, Persimmon <PSN.L>
added 7.3 percent and Barratt Developments <BDEV.L> gained 5.9
percent.
Energy stocks were the top weighted gainer in the blue-chip
index, shrugging off a near 1 percent fall in crude oil prices
<CLc1>.
BP <BP.L> gained 1.7 percent while Royal Dutch Shell
<RDSa.L> added 1.4 percent.
Most miners gained despite weakness in some metals prices,
though they did benefit from firm gold prices.
BHP Billiton <BLT.L> added 2.4 percent and Eurasian Natural
Resources <ENRC.L> added 3.4 percent while Kazakhmys <KAZ.L>
added 3.8 percent.
Rio Tinto <RIO.L> added 0.8 percent after Chief Executive
Tom Albanese said the miner expected a recovery in spot iron ore
prices before the end of this year.
Marks & Spencer <MKS.L> leapt 11.7 percent after the high
street retailer reported second-quarter sales broadly in line
with expectations.
"With the worst Christmas for at least 30 years coming up
for non-food retailers, we wouldn't get carried away, but the
shares have fallen far enough in the short term and M&S is off
the hook for the time being," said Pali International's Nick
Bubb.
Other retailers also gained with Next <NXT.L> and Kingfisher
<KGF.L> up 8.3 and 5.3 percent respectively on a view that
conditions on the High Street may not be as bad as feared.
(Additional reporting by Mark Potter; Editing by Paul Bolding)
