The leading share index pushed higher on Thursday, with investors cheering shoots of improvement in bluechip earnings and balance sheets, as well as in European economic growth.

Banking stocks led the rally after Royal Bank of Scotland reported an in-line loss, reassuring investors used to bad news from the sector.

We appreciate the good progress being made on the balance sheet metrics and believe that from a credit perspective the bank has improved its profile significantly, Carlo Mareels, senior financial credit analyst at RBC Capital Markets, said.

A deteriorating economy may complicate the recovery - or at least its speed - in the coming quarters though.

RBS rose 4.7 percent, recouping Wednesday's losses and moving back above its 10- and 20- day moving averages.

Peer Lloyds Banking Group , also majority-owned by the government, rallied 3 percent ahead of its full-year results due on Friday and after its majority-owned upmarket wealth manager St James's Place promised a significant dividend increase for 2011 and 2012.

Results also boosted outsourcing firm Capita , which added 5 percent thanks to a rise in 2011 profit and an upbeat outlook for this year.

At 12:28 p.m., the FTSE 100 <.FTSE> index was up 14.63 points, or 0.3 percent at 5,931.18, having closed 0.2 percent lower on Wednesday after hitting a seven-month closing peak on Monday.

Broad sentiment was improved by the key Ifo survey showing business sentiment in Germany - the strong link in Europe - rose to a seven-month high.

More good news on the global economy may come from the United States, where weekly jobless figures due at 1330 GMT are expected to rise. Britain's equity market ranks third among 16 Western European countries in terms of exposure to the U.S., according to Credit Suisse research.

Technicals, however, kept a lid on the FTSE's gains, with the index lacking momentum to break Monday's seven-month high at 5,956.33 and facing tough resistance ahead of the psychologically key 6,000 level last seen in the summer.

The 12 month high that we saw in July is what's keeping the FTSE under wrap at the moment, said Brenda Kelly, senior markets analyst at CMC, adding that the FTSE had also found strong support around 5,920.

Turnover, though, has started to rise, suggesting that more investors are buying into the rally which has seen the FTSE gain 6 percent since the start of the year - average daily volume for the past 30 days was 7 percent higher than for the past 90.

Flows into equity funds are only just beginning, Citigroup analysts said, noting their 'overweight' stance on UK and on financials, which make up a hefty 26 percent of the FTSE 100 index.

(Reporting By Toni Vorobyova; Editing by Jon Loades-Carter)