Britain's top share index rebounded from a three-session slide on Wednesday as a rise in banking stocks following a positive broker comment and gains in mining shares boosted the index.

The FTSE 100 index closed up 39.19 points, or 0.7 percent, reversing a downward spiral when the index surrendered almost all its remaining 2012 gains after it fell 2.2 percent on Tuesday, its second biggest percentage fall of the year.

The index dipped briefly below the 200-day moving average around the 5,695 level, which is also near 2012 lows, before bouncing back.

This appears to be a normal trading bounce following a selloff mainly driven by bargain hunting and short covering. Current downtrends remain intact, a London-based trader said.

Investor unease is reflected in the FTSE 100 Volatility index <.VFTSE>, which has leapt more than 50 percent since April 3 on concerns about global growth and Europe's debt crisis.

People are looking out for short term gains for the moment, said Dean Stevens a trader at Galvan.

Banking stocks <.FTNMX8350>, one of the largest components of the FTSE index, rebounded on Wednesday after HSBC raised its call on the sector to overweight for the first time in four years, citing valuation grounds.

This pushed up the FTSE, with Barclays , Lloyds, and RBS all making gains of more than 2 percent.


The cyclical mining sector also propped up the index, with silver producer Fresnillo leading gains by reversing a 5-week slide with a 3.4 percent jump, outstripping near 2 percent gains from Vedanta Resources and Kazakhmys .

Investors came rushing back in on the dips with the sector up 1.7 percent having shed 10.3 percent over the past month as worries over China growth have crimped the outlook for sector earnings.

I am quite sceptical on China in the long term. There's clearly been an asset bubble but in the short term it's unlikely that Chinese growth will greatly disappoint and they've got scope for fiscal stimulus, Ewen Stewart, UK strategist at Investec said.

Miners drew some support from better than expected first-quarter numbers overnight from Alcoa , which kicked off the U.S. earnings season.

Investors will watch March's Federal Budget and the latest Federal Reserve Beige Book, both to be published after the London close at 1800 GMT, following weaker than expected payrolls on Friday, which precipitated the sell-off on Tuesday.

On the downside, BSkyB fell 0.7 percent as BofA Merrill Lynch downgraded its recommendation on the pay-TV provider to underperform, lowered its price target to 640 pence and reduced its longer term earnings forecasts by 20 percent.

The bank said it is cutting its earnings forecasts for BSkyB given a less favourable subscriber mix and gross margin erosion (which) more than offset(s) the benefit of the lower broadband wholesale fees recently announced by Ofcom.

BT Group shed 2.5 percent as JPMorgan cut its rating on the telecoms firm to neutral from overweight on valuation grounds, while also citing concerns over its revenue and dividend outlook.

We remain positive on a longer-term view, (but) regulatory drags in Openreach from April may contribute to ‘12/13 revenue guidance being reduced at the FY results on 10 May, while hopes for a dividend hike may be disappointed, JPMorgan said.

Drugmaker Shire was 2.4 percent lower partly because of its defensive attributes, but also with traders citing fading bid hopes after Germany's Bayer, one of a number of possible suitors, failed to mention acquisition moves in its recent update.

(Additional reporting by David Brett; Editing by Ron Askew)