Banks led the FTSE share index higher early on Friday, as concerns surrounding the euro zone debt crisis were seen easing ahead of an Italian debt auction, although the FTSE 100 was rangebound.

The UK's benchmark index <.FTSE> was up 26.98 points, or 0.5 percent at 5,689.40 by 09:02 a.m. BT, having closed marginally lower on Thursday, as investors were spooked by downbeat data out of the U.S., which had been a beacon of recovery in recent months.

Banks <.FTNMX8350> were the main drivers on the index on Friday, as the cost of debt in Europe's distressed nations was driven down, fuelled by cheap funds from the European Central Bank, raising hopes an economic disaster in the region, which would be cataclysmic for banks' earnings, could be avoided.

Increased appetite for euro debt, following Spain's successful bond auction on Thursday, is expected to drive Italian three-year costs down at the sale.

Royal Bank of Scotland , which announced dramatic restructuring plans on Thursday, extended gains up 6.5 percent, as Seymour Pierce double-upgraded the lender to buy from reduce.

We believe that management has finally grasped the nettle, and though not guaranteed to generate rewards for shareholders, we believe there is now greater potential for gains, said Bruce Packard, analyst at Seymour Pierce.

Peers Lloyds Banking Group and Barclays rose 2.8 percent.

Investors were also waiting for results from JPMorgan Chase , the first of the U.S. lenders to post fourth-quarter earnings.

London's blue chip index, however, remained stuck in a range, desperately fighting to breakthrough and hold above the level of resistance seen around the 5,700 level.

The FTSE 100 continues to balk at resistance in the form of its October highs, at 5713 or so, although yesterday's 8.4-point decline hardly constitutes a major reversal, said Bill McNamara, technical analyst at Charles Stanley.

In fact, you might argue that the fact that the UK index is sticking so close to this critical level implies that it is simply getting ready for another push higher. A close above 5750 would suggest that such a move is underway, he said.

STAYIN' ALIVE

The FTSE 100 has rallied more than 11 percent since its late November lows, when sentiment was crippled by the worries over Europe's debt crisis.

The gains have come as economic data from the world's largest economy, the U.S., has shown improvement and there are signs that China might take steps to ease monetary policy and boost flagging growth.

That and political uncertainty in oil-producing nations has helped lift the oil price above $110 (71.66 pounds) a barrel, helping boost demand in integrated oils <.FTNMX0530>, a sector which has also been liked for its defensive qualities.

BG Group led the oil firms higher on Friday as JPMorgan lifted its target price to 1,900 pence from 1,455 pence

and nominated it as a key name to play because of its positive outlook for global LNG (Liquefied Natural Gas) in 2012.

Its portfolio of supply contracts is also ideally structured to benefit from the wide Henry Hub - oil price spread, the broker said.

With risk appetite back on among investors, miners <.FTNMX1770> were higher too, as Kazakhmys led the sector gainers, up 2.3 percent with traders citing an upgrade from Societe Generale, which follows on from recent bullish comment on the miner from analysts.

In the telecom sector, BT Group gained 1.3, after Nomura double upgraded BT to buy from reduce.

On the downside, Tesco continued to struggle after Thursday's first ever profit warning, down 1.6 percent as brokers began cutting recommendations and forecasts.

Among them, UBS cut the British food retailer to neutral from buy, while Credit Suisse downgraded the world's largest stores group to neutral from outperform.

British business supplies distributor Bunzl slipped 0.7 percent as UBS cut its rating on the firm to neutral from buy, and chip designer ARM Holding was off 0.4 percent as investors continued to worry over its outlook given the competition on smart phones and tablets from Intel .

UBS also turned negative on FTSE 100 earnings per share (EPS) growth forecasts, predicting -5 percent EPS growth in 2012, down from 0 percent.

It also now estimates the FTSE will end 2012 at around 5,800, down from 6,100 in a previous estimate.

Earnings worries caused a rupture in mid-cap firm Invensys's share price, which fell 21 percent to a two-year low as the British engineer said its profit will be hit by higher costs in its rail division and in work on Chinese nuclear reactors.

On the data front, British wholesale inflation numbers for December will be released at 0930 GMT, with PPI input figures forecast down 0.1 percent on the month, after a 0.1 percent rise in November, and PPI output numbers seen flat after a 0.2 percent increase in the previous month.

(Additional Reporting by Jon Hopkins; Editing by Helen Massy-Beresford)