* FTSE 100 gains 2.5 percent by midday * Mining stocks, banks advance * Energy stocks fall despite higher oil price By Harpreet Bhal LONDON, Oct 30 (Reuters) - Britain's leading share index climbed 2.5 percent by midday on Thursday, as interest rate cuts improved investor sentiment, lifting commodity prices and pushing banks and mining stocks higher. By 1236 GMT, the benchmark FTSE 100 .FTSE added 104.85 points to 4347.39 after rising slightly in early trade. The FTSE 100 is still down 13.3 percent in October. Miners were up, adding to sharp gains on Wednesday, as metal prices stayed above multi-year lows touched earlier in October. Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) jumped 10.8 percent, while Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) and Lonmin Plc (LMI.L: Quote, Profile, Research, Stock Buzz) added 9 percent and 7.7 percent. Copper miner Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz), soared 19.2 percent after the company said it would reduce copper output next year due to lower expected expenditure and said production was in line with 2007. Banks benefited from the U.S Federal Reserve's move to cut interest rates by half a percentage point to 1.00 percent on Wednesday to cushion the impact of a global recession. "The Fed gave the market what it wanted and at the margin we're seeing more positive sentiment creeping back in," said Nicola Chadwick, international economist at CBA. "But underlying it all are deep-seated fears about global recession." The U.S. economy shrank at a 0.3 percent annual rate in the third quarter, its sharpest contraction in three years as consumers cut spending and businesses reduced investment. Click on [ID:nN29534671] China, Norway, Taiwan and Hong Kong also cut rates, paving the way for the Bank of England and the European Central Bank to ease policy at their regular meetings next week. Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz), HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) and Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) climbed between 3.4 and 8.2 percent, also buoyed by the cost of interbank lending falling. PRICE FALLS However a reminder that the economic backdrop is still bleak came from Nationwide property data which showed house prices fell 0.5 percent this month. Heavyweight energy producers were in negative territory despite oil rising to $68 a barrel, as investors worried about the outlook for demand. BP (BP.L: Quote, Profile, Research, Stock Buzz) shed 1.2 percent and Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) fell 2.2 percent with the market reacting negatively to its third quarter earnings which came in at $10.9 billion, up from $6.4 billion a year ago. Shares in British engine maker Rolls Royce (RR.L: Quote, Profile, Research, Stock Buzz) rose 10 percent, after the firm reported that trading was in line with market expectations, prompting Numis to repeat its "add" stance and 330 pence target price for the stock. AstraZeneca (AZN.L: Quote, Profile, Research, Stock Buzz) advanced 5.6 percent. The drugmaker, helped by currency effects and cost savings, raised its full-year earnings forecasts as third-quarter forecasts beat expectations. On the downside, insurer Admiral Group (ADML.L: Quote, Profile, Research, Stock Buzz) shares fell 15.5 percent, making it the top loser on the index, as investors abandon safe-haven stocks in search for riskier returns. "It's a stock that people have hidden in because it's very robust and has a strong balance sheet," said Peter Eliot, insurance analyst at MF Global. "In the current environment, people have been buying it heavily but I guess today they're thinking it's time to venture out again." Scottish rail and bus company Stagecoach dipped 5.6 percent as Panmure Gordon cut its price target on the stock to reflect the more cautious rail outlook.

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