Energy stocks fuel FTSE gain, data supports

* BoE keeps rates unchanged; ups QE by 25 billion pounds

* Defensive telecoms, food retailers gain

* Firm U.S. data lifts sentiment

* Banks slightly weaker

By Simon Falush

LONDON, Nov 5 (Reuters) - Britain's top share index closed 0.4 percent higher on Thursday, with energy stocks lifted by optimism on the economic outlook as central banks kept rates steady and U.S. data surprised on the upside.

The Bank of England kept rates steady at a record low of 0.5 percent and said it would expand its quantitative easing programme by 25 billion pounds ($41 billion) to boost Britain's recession hit economy.

The European Central Bank also kept rates steady.

The FTSE 100 .FTSE closed up 17.75 points at 5,125.64 after gaining 1.4 percent the previous session, shaking off early weakness and tracking gains on Wall Street.

U.S. data showed a steep rise in productivity and a fall in applications for job insurance while stronger-than-forecast results from Cisco Systems (CSCO.O) also lifted the mood.

Energy stocks were the biggest support for the British index, as crude held above $80 per barrel CLc1. BG Group (BG.L), BP (BP.L), Royal Dutch Shell (RDSa.L) and Tullow Oil (TLW.L) added 0.3-1.9 percent.

British data also boosted sentiment, after manufacturing output rose faster than expected in September. [ID:nONS004571]

"All the data this week has been pretty good in the U.S. and the UK, so I think the correction we've seen recently is over and markets should keep moving back up over the next couple of weeks," said Graham Secker, UK equity strategist at Morgan Stanley.

The BoE said indicators such as spending and confidence suggested a pickup in economic activity may soon be evident.

It also said the considerable stimulus from the past was still working through the economy. [ID:nLAC003526]

Britain's economy contracted in the third quarter, making the current recession the longest since records began more than 50 years ago.

DEFENSIVES GAIN

Food retailers Tesco (TSCO.L), J Sainsbury (SBRY.L) and WM Morrison (MRW.L) added 0.3-2.4 percent, helped by speculation Dutch grocer Ahold (AHLN.AS) may be about to hit the acquisition trail, or could become a target itself. The sector was also lifted by positive results from Delhaize (DELB.BR).

BT Group (BT.L) added 2.5 percent and Vodafone (VOD.L) rose 1.1 percent, helped by results from Deutsche Telekom (DTEGn.DE) which showed good growth from its mobile business.

Rentokil Initial (RTO.L) was also among the firmest gainers, up 2.9 percent after BofA-Merrill Lynch added the support services group to its business services sector 'most preferred list'.

The banking sector was the main drag on the index, with nervousness nagging stocks after a shake-up in the sector earlier in the week. Barclays (BARC.L), HSBC (HSBA.L), Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L) shed 1.1-3.8 percent.

Standard Chartered (STAN.L) bucked the trend, adding 2.2 percent.

Investors will watch U.S. non-farm payrolls data on Friday for more clues on the outlook for the global economy.

Among individual fallers, Cable & Wireless (CW.L) took the biggest tumble, down 6.2 percent, after the telecoms group cut full-year earnings guidance. [ID:nL2333197]

Invensys (ISYS.L) dropped 3.1 percent as weakness in orders at its Operations Management division overshadowed a reiteration that full-year performance would beat last year. [ID:nL5204382] (Editing by Dan Lalor) ($1 = 0.6053 pound)