A rally by commodity issues helped haul Britain's top share index modestly higher on Thursday, the final full trading session of 2011, with volume extremely thin as investors mainly squared positions ahead of the year end.

Uunderlying sentiment was cautious ahead of a key euro zone debt auction, with Italy planning to sell up to 8.5 billion euros (7.1 billion pounds) of bonds including new tranches of its three-year and 10-year benchmarks -- its first long-term debt sale since the ECB's three-year funding operation last week.

Eyes rest firmly on Europe as traders wait for the bond auction in Italy ... with yields creeping up, a bad take-up could be all the market needs to retreat for cover, said Mic Mills, head of electronic dealing at ETX Capital.

Banks <.FTNMX8350> were lower as the sector awaited the Italian debt auction, another pointer to the path for the euro zone debt crisis, with Barclays off 0.3 percent and global heavyweight HSBC down 0.1 percent.

However part-state-owned lenders Royal Bank of Scotland and Lloyds Banking Group managed to rally, adding 0.7 percent and 0.8 percent respectively.

By 8:51 a.m., the FTSE 100 <.FTSE> index was up 1.04 points or 0.1 percent at 5,508.44, having closed 0.1 percent lower on Wednesday, with volumes again very thin at less than 3 percent of the 90-day daily average.

Market heavyweight Vodafone provided the biggest support to the blue chip index, firming 1.0 percent.

BLUE CHIP FALLERS

Integrated oils <.FTNMX0530> also found support, with BG Group ahead 0.2 percent, as Brent crude ticked higher after posting a loss of nearly $2 on Wednesday.

And specialty metals & miners <.FTNMX1770> rallied as well, with BHP Billiton up 0.7 percent, although copper prices fell for a second straight session, weighed by a firmer dollar.

Russian steelmaker Evraz , however, was weak again, down 1.5 percent, having been unsettled on Wednesday by news that an earthquake had forced the suspension of coal mining operations in Siberia's Kuzbass region.

Among other blue chip fallers, retailers retreated as investors fretted about the strength of pre- and post-Christmas sales, with Marks & Spencer down 0.9 percent and Kingfisher off 0.4 percent.

Capital Spread's head of sales Angus Campbell was bearish on Kingfisher in a 2012 preview note on Wednesday.

Kingfisher could find 2012 a difficult year with its exposure to the continent and reliance on the housing market, Campbell said.

No important British economic data will be released on Thursday, so investor attention will be focused across the Atlantic on the latest U.S. weekly jobless claims, due at 1:30 p.m., November U.S. pending home sales at 3:00 p.m. and the December Kansas City Fed survey at 4:00 p.m.

(Reporting by Jon Hopkins)