Banks enable UK's FTSE to end tough week on positive note

* FTSE 100 closes up 0.2 pct at 6,649.39 points

* FTSE ends the week down 2.8 pct

* Banks rally on signs of settlement to FX probe

By Sudip Kar-Gupta

LONDON, Sept 26 (Reuters) - Gains in bank shares helped Britain's top equity index climb on Friday, bringing to a close one of its worst weeks of the year in the wake of retailer Tesco (Xetra: 852647 - news) 's financial woes.

The blue-chip FTSE 100 index rose by 0.2 percent, or 9.68 points, to 6,649.39 points.

Banks gave the biggest lift to the market on Friday, with the FTSE 350 Banking Index advancing by 0.5 percent on signs that a regulatory probe into alleged foreign exchange rate manipulation may soon be settled.

The Financial Conduct Authority held talks this week with six banks over a co-ordinated settlement after its investigation into allegations of collusion and manipulation in the global currency market, banking sources told Reuters.

The settlement would see banks pay different sums depending on the gravity of transgression, which could total just under 2 billion pounds ($3.3 billion), the sources said.

Justin Haque, a director at Hobart Capital Markets, said a settlement on this scale would be a relief for the sector as some had expected a bigger figure.

Standard Chartered (HKSE: 2888.HK - news) and HSBC, which have a big business presence in India, got a further lift as Indian shares rose after Standard & Poor's raised its sovereign credit outlook on India to "stable" from "negative".

However, some traders felt the FTSE would make little progress in the near term, with the index down 2.8 percent over the week as a profit warning from supermarket retailer Tesco took its toll on the market.

U.S.-led air strikes against Islamic State militants have also made some investors wary of buying up new equity positions.

Investors were also preparing for a possible end to the U.S. Federal Reserve's quantitative easing programme of economic stimulus measures next month, eventually paving the way for interest rate rises next year. (1 US dollar = 0.6127 British pound) (Additional reporting by Francesco Canepa; Editing by Hugh Lawson (Other OTC: LWSOF - news) )