Banks led the top shares higher on Friday on growing expectations Greece would soon seal a long-awaited bailout deal, while economic data and earnings news fuelled hopes that the 2012 rally has further to run.

The benchmark <.FTSE> rose 19.69 points, or 0.3 percent, to 5,905.07, as officials said Germany was optimistic a Greek deal could be struck when euro zone finance ministers meet on Monday.

Banks <.FTMX1770> added the most points to the blue-chip index, as any deal struck with Greece would remove some uncertainty over their exposure.

Standard Bank strategist Steve Barrow said equity markets, jaded by a constant barrage of headlines relating to the euro zone debt crisis, could trade with a modest kind of positive risk tone if Greece finally secures a deal to unlock the 130 billion euro rescue package after several false dawns.

There's a diminishing marginal response, meaning that every next time we get to the crunch point, the market's less interested in it, he said.

He along with money managers and traders argued that while the spotlight is on Greece, it is not the be-all and end-all, with positive economic data and corporate earnings newsflow providing another strong focus.

Retail sales soared unexpectedly in January at the fastest pace since April 2011, helping send Marks & Spencer and Kingfisher up 1.4 percent and 0.8 percent.

In earnings news, Anglo American , up 1.1 percent, outperformed a 0.3 percent rise in the sector index <.FTNMX1770> after unveiling record full-year operating profit from iron ore, its largest division, and record income from coal.

I think the investors who didn't get aboard last month are sitting on cash, and the more the market goes up, particularly in areas that don't look expensive, like banks, they are probably going to be encouraged to buy, said Colin Mclean, managing director of SVM Asset Management, which has around 700 million pounds of assets under management.

Mclean reckons both banks and industrials will fuel a potential rally, with the two likely to move up by about 10 percent over the course of the next few months.

The benchmark is trading near six and a half month highs, having climbed almost 6 percent so far in 2012.

(Additional reporting by Blaise Robinson; Editing by Will Waterman)