(Reuters) - Banks helped Britain's top share index move higher near midday on Wednesday, as they hoovered up the European Central Bank's first ever offer of three-year loans and after Lloyds Banking Group was double upgraded by Exane BNP Paribas.
London's blue chips rose 8.08 points, or 0.2 percent to 5,427.68 by 1150 GMT, extending the previous session's 1.0 percent rise.
The index has bounced off the support level of around 5,340 -- its 100-day moving average -- but technical analysts said a breakthrough and hold above the 50-day moving average at around 5,450 would be needed to give the current rally any credence.
Banks led the risers after lenders lunged at the European Central Bank's offer of three-year loans on Wednesday, taking nearly 490 billion euros ($642.39 billion), well above the 310 billion forecast in a Reuters poll.
The success of the ECB's LTRO that has finally lent equities across the board some meaningful support, a London-based trader said.
It is hoped the money will help avoid a 2008-style credit crunch and grease the cogs of a financial system that had threatened to stall through banks unwillingness to lend to each other.
But analysts warned that this could just be a shot in the arm for the beleaguered euro zone patient, rather than the cure the market has been waiting for.
Before equity investors get all excited about the ECB saving the day, I just want to point out that the ECB is not curing the banking illness, it is merely given banks an aspirin to take away the pain (although maybe the latest round of deals from the ECB could be classified as the stronger codeine), said Louise Coopper, markets analyst at BGC Partners
Lloyds was the top FTSE 100 riser, up 3.9 percent as Exane BNP Paribas upgraded the UK lender to outperform from underperform on valuation grounds.
Trading at 0.4 times 2013 tangible book, the current share price appears to imply little or no franchise value for the 'Core' business, Exane said in a note.
If economic conditions stabilise and Lloyds Banking Group is able to avoid raising capital then valuation of the 'Core' business starts to look highly compelling, it said, adding there is potentially 65 percent upside to the current share price.
That had a positive read across for the rest of the UK-listed banks, with Barclays and Royal Bank of Scotland up more than 2.9 percent each.
Also helping sentiment, the Bank of England policymakers left the door open for an extra cash injection into the faltering economy in February.
And in the U.S., stock market futures pointed to a higher open later on Wednesday, ahead of November existing home sales data due at 1500 GMT.
Lingering concerns over the economic outlook, however, blighted the retailers after British chocolatier Thorntons , down more than 30 percent, issued a profit warning.
Christmas, although lacking in cheer for the retailers, might not be quite as bad as expected despite a significant number of profit warnings, subdued sales following unusually warm autumn weather and heavier discounting, Freddie George, analyst at Seymour Pierce, said.
Post-Christmas, however, we do not expect to see a 2008 rebound in sales. We thus remain cautious on the General Retailers and maintain that it is still too early to buy the sector.
Blue chips Tesco, Marks & Spencer and Sainsbury were all down more than 1.5 percent.
Outlook worries also crimped investor appetite for tech stocks, with Sage and ARM Holdings down 2.2 and 1.8 percent, respectively, after earnings from U.S. major Oracle fell short of Wall Street forecasts for the first time in a decade on sluggish software and hardware sales, fuelling fears of a global recession that would hurt tech spending.
Elsewhere, Essar Energy fell 2.5 percent after announcing its chairman was stepping aside temporarily following allegations by India's central bureau of investigation relating to the extent of the equity holding of Essar in loop telecom limited.