LONDON (Reuters) - Britain's top shares rose early on Thursday, as investors breathed a sigh of relief after the U.S. president's State of the Union address and the Federal Reserve's decision to keep interest rates near zero.
By 0922 GMT (4:22 a.m. EST), the FTSE 100 .FTSE was up 40.88 points at 5,258.35, led by banks and commodities and echoing gains on Wall Street and in Asia, after the index finished down 1.1 percent on Wednesday, its lowest close since December 18.
Analysts said investors were relieved Barack Obama's speech did not slam banks and Wall Street anew and, while the Fed's decision was not surprising, the somewhat more optimistic tone of its statement did reassure markets.
Banks, which have been in the doldrums on fears the punitive measures threatened in the U.S. could be imposed here and after downbeat results from peers in the United States and Europe, rallied strongly following Obama's address.
Barclays (BARC.L), HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Standard Chartered (STAN.L) and Lloyds Banking Group (LLOY.L) climbed 1.7 to 4.3 percent.
Rupert Armitage, a director at Shore Capital Stockbrokers, said any restrictions that might be imposed on banks will need time to be considered and whereas Obama's initial comments were aggressive, last night's speech was more considered.
"Last week he was forthright ... it was a lot more measured last night," he said.
"It is a combination of a relief rally in America last night and a bit from the Obama speech, which is seeing the market higher today."
Miners rebounded as metals prices rose following the previous session's weakness. Fresnillo (FRES.L), Xstrata (XTA.L) and Anglo American (AAL.L) added 1.6 to 2.7 percent.
The world's third-biggest platinum producer Lonmin (LMI.L) gained 2.5 percent as it reiterated its sales and cost guidance for the year, despite reporting a 13.6 percent fall in platinum sales in the first quarter.
Kazakhmys (KAZ.L) joined the rally after releasing Q4 output figures, climbing 3 percent.
Energy stocks bounced back from heavy falls sustained on Wednesday, with crude creeping above $74 a barrel, though with fears over China's heightened efforts to rein in soaring credit growth still hanging over the sector.
BG Group (BG.L) was up 0.5 percent, while oil explorer Tullow Oil (TLW.L) rose 1.7 percent, and Cairn Energy (CNE.L) gained 0.4 percent ahead of its trading update.
Royal Dutch Shell (RDSa.L), however, slipped 0.2 percent.
BSKYB IN FOCUS
British pay-TV firm BSkyB (BSY.L) rose 2.7 percent after the firm reported it added 172,000 net new customers in the second quarter of the year, at the top end of expectations, as its hugely popular high definition service pulled in new subscribers.
British private equity firm 3i Group Plc (III.L) was 0.8 percent higher after the company said it started 2010 in a strong financial position, building on the performance of the previous quarter.
Pharmaceuticals were also in demand, with GlaxoSmithKline (GSK.L) and Shire (SHP.L) up 0.4 and 0.5 percent, with AstraZeneca (AZN.L) gaining 0.3 percent ahead of its full-year results due later on Thursday.
Other defensive issues sagged as risk appetite among investors returned. British American Tobacco (BATS.L) and Imperial Tobacco (IMT.L) fell 0.6 and 0.5 percent respectively, while Centrica (CNA.L) dropped 0.4 percent and Scottish and Southern Energy (SSE.L) also shed 0.4 percent.
In the absence of British economic data, investor attention will be drawn to U.S. data including durable goods, the latest weekly jobless claims, and the Chicago Fed index -- all due at 1330 GMT (8:30 a.m. EST).