Blue chip shares rise on hopes for central bank action

At 11.50 British Time, the FTSE 100 index <.FTSE> was up 29.00 points, or 0.5 percent at 5,656.21 points, its third consecutive session of gains, building on a 1 percent rise on Friday.

"The market is taking heart from continued efforts by European leaders ... who have confirmed they will do "everything possible to protect the euro zone. However it is action rather than words that is required to solve the big problems - especially with Spanish bond yields still over 6.5 percent," said Rebecca O'Keeffe, head of investment at Interactive Investor.

Banking shares <.FTNMX850> climbed on hopes for central bank action, as lenders are big holders of euro zone debt, and as the sector's first-half results season continued with global giant HSBC's earnings report.

Europe's biggest bank reported a 3 percent dip in underlying profit and said it had made a provision of $700 million (445 million pounds) to cover "certain law enforcement and regulatory matters" after a U.S. Senate report this month criticised HSBC for letting clients shift funds from dangerous and secretive countries.

"HSBC has added to the emerging theme of the banking updates so far - strong headline performance partially offset by corporate contrition," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers.

"There is much to be said for the numbers themselves. In particular, the key metric of the capital cushion has strengthened significantly, there were strong performances from the emerging markets and the investment bank," Hunter added.

HSBC shares gained 1.0 percent.

Barclays - which posted well-received first-half results on Friday as it said it faced fresh lawsuits over its role in a Libor rate-fixing scandal - gained 2.8 percent, helped by a broker update.

Societe Generale raised its rating for Barclays to "buy" from "hold" and increased its target price to 190 pence from 170 pence, citing a firmer commitment by the lender to control costs in its investment banking business.

DEFENSIVES WEAK

The biggest support for the FTSE 100 index came from the heavyweight energy <.FTNMX0530> and mining <.FTMNX1770> sectors, which rose on hopes that expected central back action would lift the gloom surrounding the global economy and boost demand for commodities.

As investor focus switched to stocks generally perceived as more risky, defensive plays were the main blue chip losers.

Food retailers were among the worst off, with Tesco shedding 1.1 percent, and Sainsbury down 0.7 percent.

Consumer goods group Reckitt Benckiser was also under pressure, falling 0.8 percent as it warned of tough trading conditions in southern Europe while posting higher interim earnings.

Publishing group Pearson suffered the biggest decline on the FTSE 100, tumbling 2.9 percent and weighed down by a hangover from an earnings disappointment on Friday.

(Reporting by Jon Hopkins; Editing by Susan Fenton)