Banks buoy FTSE after stress-test success

By Alistair Smout and Kit Rees

LONDON (Reuters) - The FTSE gained on Tuesday as the banking sector rose after passing Bank of England (BoE) stress tests, making up for underperforming European indexes in the previous session.

Financial stocks added nearly 20 points to a 39.56 point advance for the FTSE 100 (.FTSE), which was up 0.6 percent at 6,395.65 by the close.

Royal Bank of Scotland (RBS) (RBS.L), HSBC (HSBA.L), Barclays (BARC.L) and Lloyds (LLOY.L) gained between 1.8 and 4.6 percent after the results of the latest Bank of England tests.

While RBS and Standard Chartered only passed because of steps they took to improve their capital ratios during the testing process, the other lenders did not have to take action.

BoE governor Mark Carney said there was no new wave of capital regulation for banks in the pipeline.

“Bank executives must be breathing a sigh of relief ... It is reassuring for consumers and financial authorities to recognise that the industry has tightened up how it conducts its business," SAS UK & Ireland's Head of Risk Solutions, Simon Goldsmith, said.

Among fallers, Babcock (BAB.L) retreated 1.4 percent after a downgrade to "sell" from Citi.

"While Babcock is an excellent operator with solid barriers to entry in a growing market, we currently see too many risks for comfort around its shares' investment case," Citi analysts said in a note.

Among mid-caps, UK power supplier Drax (DRX.L) surged 12.4 percent after the EU cleared state aid to convert the Lynemouth coal-fired power plant to biomass and Petra Diamonds (PDL.L) jumped 12.6 percent after saying it will buy a stake in De Beers Kimberley Mines in South Africa.

(Editing by Louise Ireland)