* FTSE 100 up 1.8 pct
* Banks hit 1 1/2-year high
* Rio benefits from Credit Suisse upgrade
* WPP falls on reported DOJ probe (Recasts, adds detail and updates prices at close)
By Kit Rees and Alistair Smout
LONDON, Dec 7 (Reuters) - Britain’s top share index rose to a one-month high on Wednesday, rallying for a third straight session as investors snapped up bank and mining stocks and rotated out of more “defensive” parts of the market.
The British FTSE 100 was up 1.8 percent to 6,902.23 points at its close, its highest closing level since Nov. 9.
Financials contributed 47 points to the rise, supported by gains in euro zone lenders. Italian banks continued to rally off of lows hit after the Italian prime minister said he would resign after voters rejected his reforms in a referendum.
Barclays rose 3.6 percent, its highest level this year. Royal Bank of Scotland rose 3.9 percent to its highest point since Britain voted in June to leave the European Union.
In all, banks were up 3.9 percent, reaching a 1 1/2-year high. Lloyds and Standard Chartered led the sector, both gaining more than 4 percent.
“In the UK but also more broadly, people are rotating into financials on expectations of higher inflation and higher yields,” said Jasper Lawler, senior market analyst at London Capital Group, adding that the European Central Bank could help to support the sector when it meets on Thursday.
Mining stocks were also strong gainers, with Rio Tinto the top gainer on the FTSE 100, up 6.6 percent as it benefited from an upgrade by Credit Suisse.
The global miner was lifted to “outperform” from “neutral” by the Swiss bank, who raised its target price on the stock to 3,600 pence from 2,750 pence.
Peer BHP Billiton rose 3.9 percent, buoyed by rising copper prices, but lagged as it was downgraded to “neutral”.
“With an improvement in laggard commodities like thermal coal and copper (and, to a lesser extent, aluminium), and with iron ore exhibiting less downside risk versus coking coal for BHP, we believe Rio now has the better earnings outlook for the year ahead,” analysts at Credit Suisse said in a note.
Among fallers, advertiser WPP dropped 2.8 percent after a report that the U.S. Justice Department was investigating the industry.
Stocks such as consumer staple Unilever and pharma firm Shire dropped as investors moved out of “expensive defensives” to take on more risk. Unilever was knocked by a downgrade from JP Morgan, while Shire suffered from a downgrade by UBS.
Healthcare stocks were also hit after U.S. President-elect Donald Trump said that he would “bring down drug prices”, with shares in midcap Indivior falling almost 5 percent.
However, while analysts are cautious over possible market shocks following a series of political upsets this year, according to a Reuters poll of strategists, brokers and analysts taken over the past week. It showed that European shares are expected to rise steadily in 2017. (Reporting by Kit Rees and Alistair Smout, editing by Larry King)