FTSE up 0.9 pct by midday; retailers, banks gain

* Retailers up; M&S, Next post forecast-beating results

* Banks rebound from previous sessions losses

* U.S. Federal Reserve decision eyed at 1915 GMT

By Harpreet Bhal

LONDON, Nov 4 (Reuters) - Britain's top shares added 0.9 percent by midday on Wednesday, boosted by gains in retailers Marks & Spencer (MKS.L) and Next (NXT.L), which posted forecast-beating results, while financials and miners also rose.

By 1144 GMT the FTSE 100 .FTSE was up 44.01 points at 5,081.22, clawing back some losses from Tuesday when the index fell 1.3 percent to hit its lowest closing level in a month.

Next (NXT.L) climbed to the top of the blue chip gainers list, up 6.2 percent after the high street retailer reported higher-than-expected third-quarter sales and upgraded its sales and profit guidance for the balance of the year. [ID:nL448585]

Rival retailer Marks & Spencer (MKS.L) put on 5.8 percent, after it reported flat first-half profits towards the top end of expectations as tight management of costs and stocks offset weak sales.

Banks rebounded from Tuesday's falls as investors re-evaluated the outlook for the sector following the 31 billion pounds ($51.06 billion) in funding from the government agreed for Lloyds Banking Group (LLOY.L) and Royal Bank of Scotland (RBS.L)

The part-nationalised lenders added 0.4 and 3.1 percent respectively, while Barclays (BARC.L), HSBC (HSBA.L) and Standard Chartered (STAN.L) advanced 1 to 3.2 percent.

Gains on the index were exaggerated by low volume as investors stayed on the sidelines ahead of the conclusion of a U.S. Federal Reserve meeting after European markets close on Tuesday, while the Bank of England's policy decision is expected on Thursday.

"There will be an element of nervousness ahead of the interest rate decisions. The market will look for any signs that we're getting closer to the idea that they could be starting to consider that interest rates will need to go higher," said Henk Potts, equity strategist at Barclays Wealth.

"Although, our expectation is that we won't see signs of that, certainly from the Federal Reserve today," he said.

The Fed is seen affirming that policies to support the economy will stay in place for some time while keeping interest rates near zero. The BoE is expected to increase its quantitative easing policy and keep interest rates unchanged. [ID:nLU602849]

UPBEAT DATA

In a sign of an improvement in the economy, the British services sector showed its strongest activity since the start of the credit crunch in October 2008, the CIPS/Markit services PMI data showed.

Meanwhile the outlook for retailers received a boost from data showing British consumer morale hit its highest levels in the last two months since April 2008, according to the Nationwide Consumer Confidence Index. [ID:nLAG005888]

Investor focus later in the session will likely turn to the U.S. ADP employment survey at 1315 GMT, which may provide some insight into the outcome of U.S. October non-farm payrolls numbers which are due on Friday.

Among other gainers on the FTSE 100, mining stocks advanced after a rise in commodity prices on the back of a weak dollar ahead of the Fed decision.

Antofagasta (ANTO.L), Lonmin (LMI.L), Fresnillo (FRES.L), Randgold Resources (RRS.L), Xstrata (XTA.L) and Kazakhmys (KAZ.L) were up 3.2 to 5.5 percent.

Aviva (AV.L) led the life insurers higher, gaining 5.5 percent, with the firm shrugging aside results that were slightly below forecasts as investors reacted positively to its solvency position.

Legal & General (LGEN.L), Old Mutual (OML.L), Prudential (PRU.L) and Standard Life (SL.L) added 0.2 to 1.9 percent.

On the downside, defensive issues fell out of favour as investors' appetite for riskier stocks intensified. Drugmakers AstraZeneca (AZN.L) and GlaxoSmithKline (GSK.L) lost 0.5 and 0.8 percent respectively, with Glaxo trading ex-dividend.

Overall ex-dividend factors knocked 9.40 points off the index, with Intertek Group (ITRK.L) and Royal Dutch Shell (RDSa.L) (RDSb.L) also losing their dividend payout attractions.

Drinks firm Diageo (DGE.L) fell 0.8 percent as Barclays Capital started coverage on the stock with an "underweight" rating and a "negative" view on the sector. ($1=.6071 pounds) (Editing by Mike Nesbit)