Britain's FTSE recovers from two-week low as banking stocks rally

* FTSE 100 up 1.7 pct as banks rally on ECB measures

* Aviva (Other OTC: AIVAF - news) rises again

* Resources stocks up, tracking commodities prices (Adds closing prices)

By Kit Rees and Alistair Smout

LONDON, March 11 (Reuters) - Banking stocks lifted Britain's FTSE 100 on Friday, although they underperformed leading euro zone shares favoured by investors as the main beneficiaries of bold stimulus measure from the European Central Bank.

The blue-chip index closed up by 103.09 points, or 1.7 percent, at 6,139.79 points by the close, recovering from Thursday's two-week low, while Germany's DAX rose 3.5 percent and Italy's FTSE MIB nearly 5 percent.

ECB chief Mario Draghi's stimulus package sent markets into negative territory at first but investors were cheered by a plan for ultra cheap four-year TLTRO loans to banks.

"While markets had a tantrum after Draghi's comment ... we still see yesterday's announcement as net positive with potential for more QE and the TLTRO refinancing proposition offsetting negative rates to some extent and having genuine potential to to boost Eurozone growth and inflation," Accendo Markets analysts said in a note.

British banks were among the top sectoral risers, up 2.1 percent with Barclays (LSE: BARC.L - news) , Standard Charterd and Royal Bank of Scotland (LSE: RBS.L - news) all rising between 3.7 percent and 4.3 percent.

"We turned positive on financials last week and they should get some relief from profitability concerns linked to negative interest rates, after Mr. Draghi indicated further rate cuts were less likely," Credit Suisse (LSE: 0QP5.L - news) analysts said, noting that the TLTROs should give the sector added support to outperform.

The FTSE 100's biggest gainer was insurer Aviva, which extended gains made in the previous session after posting well-received results, jumping 6.4 percent after UBS (LSE: 0QNR.L - news) raised its price target on the stock.

"Aviva is clearly on a far better footing than it has been for many years, in our view. But we are relatively cautious around buying into a dividend growth story when sustainable capital generation appears low relative to peers and growth initiatives are yet to be clearly articulated," UBS analyst, James Shuck, said in a note.

Oil and gas stocks also rallied after the price of brent continued to rise, while mining stocks benefited from a gain metals prices, which were lifted by the ECB stimulus measures.

Among the fallers, Old Mutual (Other OTC: ODMTY - news) 's decision to split itself into four units and to move to a more conservative dividend policy sent the shares down 1.8 percent. (Editing by Louise Ireland)