By Dominic Lau LONDON, Oct 14 (Reuters) - Britain's top share index rose for the second day on Tuesday, recovering more of last week's heavy losses, but investors remained nervy despite Washington's plan to take stakes in its banks to support financial markets. The FTSE 100 .FTSE ended up 3.2 percent at 4,394.2, well off its high of 4,534.4 after the Dow .DJI and the S&P 500 .SPX pared earlier gains, and the Nasdaq .IXIC turned negative as investors sold technology shares on fears that fall-out from the credit turmoil would hurt profits. The UK benchmark posted its second best one-day percentage rise ever on Monday after plummeting 21 percent last week -- the index's second worst weekly fall ever -- on liquidity strains and global recession fears. The index is down nearly 32 percent this year. Energy stocks were the top-weighted gainers, holding onto their earlier gains despite crude prices CLc1 turning lower in afternoon trade. BP (BP.L: Quote, Profile, Research, Stock Buzz) and Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) rose 6.8 and 5.6 percent, respectively. The U.S. Treasury said it would pump $250 billion into U.S. banks in an effort to thaw frozen credit markets. Treasury Secretary Henry Paulson said nine banks that he called "healthy institutions" had agreed to accept government stakes for the good of the U.S. economy, though he did not name the banks. Beaten-down UK banks were mostly firmer, with the FTSE 350 rising 2.8 percent. But the three banks that will take UK government cash -- Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) -- were down between 1.1 and 6.6 percent, extending Monday's losses. "We are going to see banks being nationalised or part-nationalised over the next six to 12 months. There are going to be some big names there, and that's going to be a shock to the system," said Martin Slaney, head of derivatives at GFT Global Markets. Slaney said the actions of the U.S. and European governments would help calm jitters and ease liquidity strains. "But there are going to be down days, and there will be massive whipsaw in volatility. We haven't got rid of that yet ... We will continue to see unwinding of risk and the market being driven by emotion on the slightest whim," he said. In the financial sector, hedge fund firm Man Group (EMG.L: Quote, Profile, Research, Stock Buzz) surged 7.2 percent, and interdealer broker ICAP (IAP.L: Quote, Profile, Research, Stock Buzz) soared 12.5 percent. Analysts said more monetary easing, in addition to last week's coordinated 50 basis-point rate cuts by major central banks, would be needed to further relieve the strain on bank-to-bank lending. "The most important thing is to get money markets working again," said Neil Parker, market strategist at Royal Bank of Scotland. "If we can do that, with a combination of the measures that have already been put in place and further interest rate cuts from the central banks, then we could be reaching a turning point." EASING LIBOR The day saw the biggest fall in the interbank cost of borrowing three-month dollars since March and the biggest fall this year in three-month euro rates. British consumer price inflation hit a 16-year high of 5.2 percent in September, but Bank of England policymakers had anticipated the rise, which is unlikely to stand in the way of further rate cuts. [ID:nLE168563] Miners were mixed as metal prices slipped from the day's highs. Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), Lonmin (LMI.L: Quote, Profile, Research, Stock Buzz), Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz) and Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) were in the red. But Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz), BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) and Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) headed higher. (Additional reporting by Simon Falush, editing by Will Waterman)

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