Britain's FTSE rises again, as banks and miners lead cyclical charge

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* FTSE 100 up 1.2 pct

* Banks hit 1-1/2 year high

* Rio benefits from Credit Suisse (IOB: 0QP5.IL - news) upgrade

* WPP (Frankfurt: A1J2BZ - news) falls on reported DOJ probe

By Alistair Smout

LONDON, Dec (Shanghai: 600875.SS - news) 7 (Reuters) - Britain's top share index rose on Wednesday, rallying for a third straight session as investors snapped up bank stocks and miners and rotated out of more "defensive" parts of the market.

The British FTSE 100 was up 82.38 points, or 1.2 percent, at 6,862.22, and is up 1.9 percent so far this week.

Financials contributed 31 percent to the rise, supported by gains in euro zone lenders. Italian banks continued to rally off of lows hit after the Italian prime minister said he would resign after voters rejected his reforms in a referendum.

Barclays (LSE: BARC.L - news) rose 2.7 percent, hitting its highest level this year, while Royal Bank of Scotland (LSE: RBS.L - news) rose 3 percent to its highest point since Britain voted in June to leave the European Union.

In all, banks were up 2.6 percent, reaching a 1-1/2 year high. Standard Chartered (BSE: 580001.BO - news) led the sector with a 3.8 percent gain.

"In the UK but also more broadly, people are rotating into financials on expectations of higher inflation and higher yields," said Jasper Lawler, senior market analyst at London Capital Group, adding that the European Central Bank could help to support the sector when it meets on Thursday.

Mining stocks were also strong gainers, with Rio Tinto (Hanover: CRA1.HA - news) the top gainer on the FTSE 100, up 4.1 percent to 3,145 pence as it benefited from an upgrade by Credit Suisse.

The global miner was lifted to "outperform" from "neutral" by the Swiss bank, who raised its target price on the stock to 3,600 pence from 2,750 pence.

Peer BHP Billiton rose 1.5 percent, buoyed by a rising copper price, but lagged as it was downgraded to "neutral".

"With (Other OTC: WWTH - news) an improvement in laggard commodities like thermal coal and copper (and, to a lesser extent, aluminium), and with iron ore exhibiting less downside risk versus coking coal for BHP, we believe Rio now has the better earnings outlook for the year ahead," analysts at Credit Suisse said in a note.

Among fallers, advertiser WPP dropped 2.1 percent after a report that the U.S. Justice Department was investigating the industry.

Stocks such as consumer staple Unilever (NYSE: UL - news) and pharma firm Shire (Xetra: S7E.DE - news) dipped as investors moved out of "expensive defensives" to take on more risk. Unilever was knocked by a downgrade from JP Morgan, while Shire suffered from a downgrade by UBS (LSE: 0QNR.L - news) .

Precious metal miners Fresnillo (Frankfurt: A0MVZE - news) and Randgold slipped as safe-haven gold fell on the prospect of higher interest rates in the United States. (Reporting by Alistair Smout; editing by Mark Heinrich)