Britain's top share index pushed higher early on Thursday, recouping all the previous session's falls, albeit in thin volume as investors awaited a key Spanish bond auction to gauge the extent of investor appetite for euro zone debt.

At 0800 GMT, the FTSE 100 <.FTSE> index was up 35.70 points, or 0.6 percent at 5,780.99, having shed 0.4 percent in the previous session following strong gains on Tuesday.

Volume was just 8.9 percent of the 90-day daily average.

Spain will auction two-year and 10-year bonds later on Thursday, after drawing stronger-than-expected demand for shorter-dated debt on Tuesday.

Spain's 10-year government bond yield shot above 6 percent earlier this week, raising fears it may have to seek an international bailout, and knocking banking stocks in particular due to concerns over lenders' euro zone debt exposure.

Anything less than (Spain) being able sell the maximum target of 2.5 billion euros of bonds will again instill equity markets with fear that the financial crisis can't be contained and is taking a turn for the worse, with banks heavily exposed to Spain expected to bear the brunt of the declines, said Markus Huber, head of German trading for ETX Capital.

Banks <.FTNMX8350>, the biggest blue-chip fallers on Wednesday, rallied modestly, with Barclays up 0.8 percent on expectations the Spanish auction will be successful.

Hargreaves Lansdown was the top blue-chip gainer, up 4.9 percent as the British investment manager brushed off investor jitters about the parlous state of Europe's economy by reporting 1 billion pounds' net inflow of new funds from clients in the first three months of 2012.

This IMS (interim management statement) supports our view that Hargreaves Lansdown will deliver high revenue growth. Full year results in early September should show very strong earnings and cash generation, said Canaccord Adams in a note, repeating its buy rating on the stock.

Aberdeen Asset Management rallied in sympathy with the Hargreaves update, adding 2.2 percent.

Engineer IMI was also a strong blue chip gainer, ahead by 3.6 percent, lifted by an upgrade in rating from Jefferies International to buy from hold with an increased target price of 1.150 pence, up from 840 pence.

VODAFONE BOOST

Market heavyweight Vodafone provided the biggest points boost for the FTSE 100 index, up 0.8 percent as investors awaited the deadline for the mobile telecoms group to bid for mid-cap firm C&W Worldwide at 1600GMT on Thursday.

C&W Worldwide was the biggest FTSE 250 <.FTMC> faller, dropping 23 percent after India's Tata Communications said on Wednesday it would not make a bid for the British firm, leaving a possible offer from Vodafone as the only bid hope.

The FTSE 250 index <.FTMC> itself was up 0.5 percent.

Retailers also featured among the mid cap fallers, with WH Smith losing 1.7 percent after it posted a 5 percent slip in first-half like-for-like sales, although its pretax profit rose 3.1 percent to 66 million pounds.

WH Smith said it expects the trading environment to be challenging, although it saw opportunities for growth in the UK and internationally.

And Argos stores chain-owner Home Retail Group shed 2.1 percent as Bernstein Research started coverage of the firm with an underperform rating and 80 pence in a cautious review of the European general retail sector.

Although we also expect an improving outlook relative to 2011, valuation seems to be anticipating further improvement in consensus estimates that we believe is unlikely to occur, given rising fuel prices and unemployment and launch with a negative stance on the sector, Bernstein said in a note.

No major British economic data will be released on Thursday, so investors will focus on a batch of U.S. pointers, with the latest U.S. weekly jobless claims due at 1230 GMT, and March existing home sales, March lead indicators, and the April Philly Fed index all due at 1400 GMT.

(Editing by Catherine Evans)