FTSE jumps 4.9 pct, led by banks, commodities Tue Mar 10, 2009 5:06pm GMT By Dominic Lau

LONDON, March 10 (Reuters) - Britain’s leading share index rallied nearly 5 percent on Tuesday, led by banks as a Citigroup (C.N) memo lifted sentiment towards the battered sector and by commodity stocks which tracked firmer raw material prices.

The FTSE 100 .FTSE closed 172.83 points or 4.9 percent higher at 3,715.23, gaining for the third day in a row. It was the biggest one-day percentage increase since December 8.

But the UK benchmark is still down 16 percent for the year after sliding more than 31 percent in 2008.

Banks added the most points to the UK index, boosted by news that Citigroup Chief Executive Vikram Pandit said in a memo that the bank was profitable in January and February and was "confident about our capital strength" after tough internal stress tests.

Barclays (BARC.L) surged 9.9 percent, also helped by an upgrade from Credit Suisse to "outperform" from "neutral", while HSBC (HSBA.L) bounced more than 14 percent after losing one-third of its value since Feb. 26.

Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) and Standard Chartered (STAN.L) surged between 8 percent and 16.3 percent.

"Banks and financials are driving equities higher today, and it is good to see a little bit of confidence returning to the market," said Angus Campbell, head of sales at Capital Spreads.

"The outlook is pretty dire, technically still very weak. But news over the recent days has been so dire, we may have overextended the recent falls and in the absence of any news flow and any economic data the market is finding a little bit of momentum and a little bit of support."

European shares also finished the day higher, while U.S. stocks rallied, boosted by comments from Rep. Barney Frank that he expected the Securities and Exchange Commission uptick rule to be restored in about a month.

U.S. Federal Reserve Chairman Ben Bernanke said he did not favour suspending mark-to-market financial accounting, but understood the problem of valuing assets in highly disrupted markets.

The International Monetary Fund warned that the world economy will likely contract this year in a "Great Recession".

In the UK, industrial output fell 2.9 percent in February -- more than twice as fast as expected -- and shrank at its fastest annual pace since January 1981, while the British Retail Consortium said the value of like-for-like retail sales fell 1.8 percent last month, compared with a year ago.

Volumes on the FTSE were more than 130 percent of the index’s 90-day average daily volume.

INSURERS, COMMODITIES SHINE

Beaten-down insurers also rebounded, with Prudential (PRU.L), Standard Life (SL.L), Old Mutual (OML.L), Friends Provident (FP.L) and Legal & General (LGEN.L) rising 15.3 percent to 21 percent.

Miners tracked stronger base metal prices. Kazakhmys (KAZ.L), Eurasian Natural Resources (ENRC.L), Xstrata (XTA.L), Anglo American (AAL.L), BHP Billiton (BLT.L) and Rio Tinto (RIO.L) were up between 7.9 percent and 14.5 percent.

Randgold Resources (RRS.L) was one of the two losers, down 8.1 percent as prices in safe-haven gold eased in a rallying market.

Firmer crude prices aided oil producers. BP (BP.L) put on 3 percent and Royal Dutch Shell (RDSa.L) added 4.6 percent.

Security firm G4S (GFS.L) advanced 6.4 percent after it posted a 23 percent rise in 2008 profit and hiked its dividend by 30 percent.

Man Group (EMG.L) soared 13 percent after Citigroup upgraded the hedge fund manager to "buy" from "sell", saying it sees the firm as a survivor of the hedge fund industry turmoil.

(Editing by Elaine Hardcastle)