* FTSE 100 gains 0.2 pct * Banks gain on U.S. govt plans for Citi; RBS jumps
* Oils, miners bolstered by firmer commodity prices
By Simon Falush
LONDON, Feb 23 (Reuters) - Britain's top share index inched up by midday on Monday, as a report that the U.S. government could end up owning as much as 40 percent of Citigroup calmed nervous investors, bolstering banks and commodity stocks.
By 1131 GMT the FTSE 100 .FTSE had gained 9.51 points at 3,898.57, recovering a sliver of its 3.2 percent fall on Friday, which took last week's loss to 7.2 percent.
The UK blue chip index closed below the 4,000 level for the first time in three months on Friday, on concerns that the global recession is deepening and is down 12 percent this year after slumping over 31 percent in 2008.
The U.S. Treasury on Sunday declined comment on reports that Citigroup (C.N) was in talks that could result in the government taking a 40 percent stake in the company, however the department said it was open to converting preferred shares into common equity to strengthen banks. [ID:nN23301087]
This allayed fears that the U.S. bank may be completely nationalised, resulting in investors moving back into financial stocks, which had taken a battering last week on growing jitters about the health of the financial system.
"Those stocks that were aggressively sold off last week, banks and miners, are bouncing on the expectation that the government is going to do something decisive on Citi... as this is removing uncertainty," said Rob Griffiths, strategist at Cazenove.
Royal Bank of Scotland (RBS.L) was the top gainer on the blue-chip index, up 14 percent after a banking source said on Sunday that it is to announce a restructuring this week to create a non-core division into which unwanted assets will be placed. [ID:nLM237777]
"Banks remain in focus, they are pivotal in terms of the market," said Jeremy Batstone-Carr, analyst at Charles Stanley.
"Efforts to ring-fence toxic assets at RBS and the fact there appears to be no all-out nationalisation of Citi is steadying the ship."
Britain's state-owned Northern Rock bank plans to increase its mortgage lending by up to 14 billion pounds ($20.33 billion) over the next two years, a Treasury official said on Sunday.
The plan to get Northern Rock lending again is part of a series of initiatives expected this week, designed to get credit in Britain flowing again after the economy shrank by 1.5 percent in the last three months of 2008. [nLM197721]
Other banks were also strong gainers with Barclays (BARC.L), HSBC (HSBA.L) and Lloyds Banking Group (LLOY.L) up between 1.9 percent and 7.3 percent.
