Both HBOS and BBVA declined to comment.

Barclays , HSBC , HBOS , Lloyds TSB , Royal Bank of Scotland and Standard Chartered were up 3.2 to 8.3 percent.

"The consensus position is to long energy and short financials ... Financials have seen such a massive de-rating. If we start to see the oil price comes off, the temptation to switch those two becomes much greater," said UBS strategist Gareth Evans.

The Bank of England’s minutes of the July 9-10 policy meeting showed one policymaker wanted to raise interest rates another wanted a cut, but the remaining seven chose to keep them steady as both the inflation and economic growth outlook had deteriorated.

FRIENDS IN DEMAND

Friends Provident climbed nearly 10 percent after Goldman Sachs said it had listed the insurer as a "conviction buy" from "not rated".

The broker also initiated Standard Life as a "conviction buy". The stock was up 3.7 percent.

BHP Billiton put on 0.9 percent. The miner reported strong quarterly production gains led by copper and iron ore, but warned of a looming decline from the world’s biggest copper mine.

The rest of the mining sector was mixed, with Rio Tinto , Xstrata and Vedanta Resources up. But Anglo American , Lonmin , Eurasian Natural Resources and Ferrexpo were down.

"From an economic prospective, a fall in oil prices is a helpful development ... (But) keeping things in perspective, a fall in the oil prices is still relatively modest in the context of the absolute level," said Darren Winder, equity strategist at Cazenove.

"We will need to see a significant further decline in oil prices from here before we start contemplating a much more favourable economic outlook than we have started to discount."

Centrica added 2.1 percent after the energy company said it was to double its stake in Belgian generation and supply company SPE SA to 51 percent for 515 million euros (407 million pounds).

House builders, which have been battered on concerns about falling property prices, weaker economic outlook and the possibility of higher interest rates, also bounced, with Taylor Wimpey up 12 percent and Barratt Developments gaining 14.6 percent.

(Additional reporting by Atul Prakash; Editing by David Cowell)