* FTSE 100 gains 1.6 percent, set for best day since July
* Financials rise as short term hike to debt ceiling seen
* FTSE 100 breaks through 200 day moving average
* GKN benefits from target price hike, new director
(Updates to add closing prices with no other changes to text)
By Alistair Smout
LONDON, Oct 10 Britain's top share index bounced
off three-month lows early on Thursday as signs of progress on
ending the fiscal stalemate in Washington buoyed sentiment, with
banks in particular leading the index higher.
Banks rose 2 percent, while financials, which
include banks, insurers and asset managers, added 31 points to
the FTSE 100 - a third of its rise.
The UK's FTSE 100 closed up 92.58 points, or 1.5
percent, at 6,430.49, with 96 percent of stocks in positive
territory in its strongest day since early July.
Equities in Europe mirrored a rebound overnight on Wall
Street, which traders attributed to reports that U.S.
Republicans were looking to a short-term increase to the
government's borrowing authority to buy time for talks on
broader policy issues.
"The banks are receiving a lift from the hope that the
Republicans and the White House can come to some kind of
agreement," Jeremy Batstone-Carr, analyst at Charles Stanley,
"But putting a sticking plaster over the problem doesn't
really solve it."
The index had fallen over the three previous days to its
lowest level since July 3 on worries the U.S. could default on
its debt, and traders were wary about reading too much into
today's rise given the recent poor performance of the index.
"We haven't really taken part in any rallies that have taken
place... and we're hardly in a strong position," Nick Dale-Lace,
sales trader at CMC Markets, said.
The index broke back above the 200-day moving average that
it had dropped below earlier in the week and hovered near the
downtrend line from the September high.
Among the top gainers was GKN, which rose 4.3
percent after RBC raised its target price on the stock and on
news that Informa's current finance director Adam Walker is
joining next year.
(Editing by Ruth Pitchford, Ron Askew)