Britain's blue-chip index was virtually flat on Friday but banks recovered after falls the previous day and the index still looked poised for its biggest weekly rise since February.

Banking shares <.FTNMX8350> have been volatile in recent days as jitters about the euro zone debt crisis ebbed and flowed. However, they regained some ground on Friday, led by Lloyds banking group and Barclays .

Investec repeated its buy rating on Lloyds and both shares drew heavy volumes and gained around 1 percent.

While worries about the euro zone, and Spain's ability to meet its deficit targets in particular, continue to pose a risk for banks, hopes that the IMF will secure more funding at meetings this weekend, giving it more firepower to tackle the euro zone crisis, could support risk appetite and global stocks early next week.

Negotiations hit a speed bump though as Brazil has demanded more power at the IMF for emerging economies as a condition for contributing extra cash.

The FTSE <.FTSE> was up 0.2 percent by 1158 GMT, recovering early losses. It was up 1.9 percent so far this week, its best performance since February. Mining shares also rose.

The general expectation is that out of the IMF meeting we will get a generous commitment from the non-EU countries to bolster the IMF rescue fund, whether it will be the 400 billion the IMF wants that remains in the balance, but from what I am hearing we might be more positive at the beginning of next week, said Peter Dixon UK economist at Commerzbank.

Options expiries later in the session supported the index slightly but did not have a big overall impact, traders said, while volatility <.VFTSE> dipped slightly.

I don't think we are looking at big level changes at this stage of the game, 5,700 represents a floor, but if you look at the trend for the last two months the next logical level is around that area, but hopefully markets will get a lift when UK GDP figures are released next week.

Merrill Lynch, however, told investors on Friday to ditch equities and pile into bonds, spooked by weaker U.S. data and European sovereign debt concerns.


Chip designer ARM Holdings , shed 2.3 percent, echoing overnight losses for U.S. tech stocks on earnings concerns after chipmaker Qualcomm Inc warned of supply issues.

The chip shortage is negative for the iPhone 5 and therefore negative for Apple and ARM (as the iPhone uses ARM-designed chips), a London-based trader said.

Oil and gas shares dragged its feet on the FTSE, the highest sectoral fall, led by BP wiping almost 4 points off the index.

TNK-BP , British oil group BP's Russian joint venture, said it was aware of the urgency of environmental issues, such as the need for pipeline maintenance, following a barrage of criticism from the government over oil spills in Siberia.

British oil explorer Rockhopper shed 4.5 percent on disappointment linked to the potential size of its Sea Lion oil field in the Falkland Islands, and on a lack of progress with a plan to bring in a new partner to help develop the field.

But the FTSE showed little reaction to strong British retail sales data, remaining around 0.2 percent higher following their release.

Looking ahead, U.S. stock futures <.SPX> pointed to a lower open on Wall Street.

Take a look at the Spanish economy in graphics:

(This version of the story was corrected in paragraph 5 to say best performance since Feb (not Jan))

(Graphics by Vincent Flasseur; Editing by Susan Fenton)