The blue-chip stock index was higher at midday Wednesday, with sentiment boosted by upbeat economic data from China, strong corporate earnings, and expectations for an imminent Greek debt deal.

The FTSE 100 <.FTSE> index was up 78.04 points, or 1.4 percent, at 5,759.62 at 1228 GMT, with mining stocks <.FTNMX1770> providing the biggest boost after data showed the factory sector in China -- the world's largest consumer of metals -- unexpectedly expanded in January.

The prospect of improving industrial activity in world's second largest economy and rising tensions between oil-rich Iran and the West boosted crude prices and energy shares <.FTNMX0530>, which added to Tuesday's gains.

Also fuelling risk appetite were hopes Greece will avoid a messy default that would batter the European financial system.

Greek finance minister Evangelos Venizelos said on Tuesday the country was one formal step away from closing a deal with private bondholders to restructure 200 billion euros ($262 billion) debt.

The prospect of a Greek deal helped banks <.FTNMX8350> resume their recent rally after a three-day decline. The sector avoided a bearish signal on Tuesday by managing to close above its 14-day moving average.

(The Chinese data) put us on a good sort going into the market open and confidence was also buoyed by the fact that it appears we are a step away from a Greek resolution, Lee Curtis, a trader at City Index, said.

People are trying to get in before they miss the boat. They are fed up of waiting for something concrete to happen. They are just going to go on the assumption that we are close to a resolution.

Curtis, who also cited solid corporate results as supporting investor confidence, expected the rally to extend into the U.S. open and the FTSE 100 index to test the 5,795-5,800 level.

Johnson Matthey , the world's largest supplier of catalytic converters, added 3.3 percent after saying its second-half profit should be slightly ahead of the first, after a third quarter boosted by Chinese sales and North American truck sales.

It joined oil major BP and coal miner Xstrata , which reported strong production results earlier this week.

ICAP rose 8.5 percent after the financial markets broker unveiled projections at the high end of the analyst range, overhadowing a largely discounted tough trading update.

U.S. futures were pointing to a higher start for Wall Street indexes ahead of ESM manufacturing PMI data at 1500 GMT, which was expected to show the index rose to 54.5 in January from 53.1 the previous month.

LIMITED UPSIDE

The FTSE 100 has risen 3.3 percent this year, with risk appetite fuelled by the European Central Bank's move to inject liquidity into the financial system and avoid a credit squeeze.

Analysts remained cautious on the index's long-term upside prospects, saying earnings were bound to suffer from austerity-driven anaemic economic growth in Europe.

In the short term liquidity took out the risk of a tail event. European equities were more depressed versus global peers. That has probably closed to an extent now, Robert Quinn, chief European strategist at Standard & Poor's Capital IQ, said.

Beyond that, equities should follow the path of growth. Liquidity helps in the short term but it cannot go past the fact that there is going to be no growth in Europe this year.

Quinn has a 6,100 year-end target for the FTSE 100, which leaves an upside of less than 6 percent.

As earnings growth came under pressure, investors were likely to seek dividend plays as a more reliable source of income.

Shore Capital strategist Gerard Lane said investors should pick stocks with a track record of beating dividend expectations, such as Lancashire Holdings , Antofagasta and Wolseley .

He estimated stocks with the top 10 percent of dividend surprises returned a negative 2.7 percent capital return on an equal-weighted basis in the past 12 months, outperforming a negative 5.2 percent from the FTSE 350 <.FTLC> benchmark.

We believe that dealing with 'known knowns' reduces forecast risk and enables an intuitive approach to stock selection of favouring those companies that have over-delivered on dividends compared with previously held expectations, Lane said.

(Editing by Dan Lalor)