FTSE gains for 2nd day, Fed minutes improve sentiment

* FTSE 100 index rises 0.8 percent, up for 2nd day

* U.S. Federal Reserve's minutes boost sentiment

* RBS (LSE: RBS.L - news) up on deal to end government's dividend priority

By Atul Prakash

LONDON, April 10 (Reuters) - Britain's top share index rose on Thursday, with investors' risk appetite rising after minutes of the U.S. central bank's latest policy meeting suggested it would be more cautious in raising rates than expected.

The blue-chip FTSE 100 index rose 0.8 percent to 6,685.37 points by 0800 GMT after gaining 0.7 percent in the previous session. The index is still down nearly 1 percent this year after surging 14 percent in 2013.

Cyclical shares were broadly in demand, with the UK banking index rising 1.1 percent and miners up 0.9 percent as the Federal Reserve minutes prompted a shift in expectations of when U.S. interest rates will start to rise.

Trading interest-rate futures showed expectations of a first rate hike had been pushed out by about six weeks, to July 2015.

"The market probably got a little bit ahead of itself in terms of expectations of the timing of the first rate rise. The market is taking (the Fed minutes) into account and that's positive for sentiment," said Henk Potts, equity strategist at Barclays Wealth.

The FTSE 100 was also supported by strong gains recorded by some individual shares following their announcements.

Retailer Marks & Spencer gained 2.6 percent, the biggest percentage gainer on the FTSE 100, after signs its turnaround programme may finally be gaining traction. Its fourth quarter results showed an improvement in the sales falls suffered by its main non-food division.

Royal Bank of Scotland climbed more than 2 percent after it said it had agreed to pay 1.5 billion pounds ($2.5 billion) to cancel an arrangement that gives the government priority over dividends, clearing an obstacle to the lender's eventual privatisation.

"The agreement ... is a welcome step in the road to RBS becoming a normal bank with the ability to pay dividends to shareholders, which should help in making the share a more attractive proposition to investors," Espírito Santo Investment Bank said in a note.

Despite rising for two straight sessions, analysts said the stock market remained vulnerable due to lingering geopolitical tension in Ukraine and concerns about growth in China, the world's biggest metals consumer and the second-biggest economy.

Chinese Premier Li Keqiang ruled out major stimulus to fight short-term dips in growth, even as big falls in imports and exports data reinforced forecasts that the world's second-largest economy has slowed notably at the start of 2014.

Li stressed on Thursday that job creation was the government's policy priority, telling an investment forum it did not matter if growth came in a little below the official target of 7.5 percent.

Charts showed the FTSE 100 had slipped into a short-term range, with resistance at 6,700 and support at around 6,500.

"The strength of the long-term trend still implies that any break is likely to be to the upside, but the fact that the index is struggling to get away from the lows is still a cause for concern," Charles Stanley (LSE: CAY.L - news) technical analyst Bill McNamara said. (Reporting by Atul Prakash; Editing by Catherine Evans)