* FTSE hits 12-month high, up for fifth day
* Banks, commodity stocks in demand as risk appetite returns
* Broker upgrades lift airlines
By Simon Falush
LONDON, Sept 17 (Reuters) - Banking and energy stocks fuelled an 0.8 percent gain for the FTSE 100 by close on Thursday, up for a fifth straight day, as sentiment on the outlook for the global economy improved further.
Britain's blue chip index closed up 39.82 points at 5,163.95, its highest close since late September last year, having added 1.6 percent on Wednesday.
Banks added the most points to the chip index as growing investor confidence in a global economic recovery bolstered risk appetite.
Heavyweight HSBC gained 1.3 percent, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered rose 0.5-2.5 percent, though Barclays, retreated 0.5 percent.
"There's a general feeling of well-being, and the markets are buoyant for the time being," said David Battersby, investment manager at Redmayne-Bentley. "People who missed out on the rally so far don't want to be left behind."
The FTSE 100 has risen 21.5 percent this quarter and is on track to post its best percentage quarterly gains since the index was launched in 1984, but it is still down 4.6 percent from a year ago, just before the collapse of Lehman Brothers.
Adding to the sense that the global economy is making a swift recovery, the number of U.S. workers filing new claims for jobless benefits fell unexpectedly last week and new U.S. housing starts and permits increased to their highest level since November.
This helped push the U.S. dollar, which tends to retreat as risk appetite recovers, to its lowest in a year against the euro .
Energy stocks were in demand as crude prices rose towards $73 a barrel, taking a breather after a rise of more than 2 percent a day earlier, with BP and Royal Dutch Shell adding 1.1 and 0.9 percent, respectively.
Tullow Oil climbed 4.9 percent after the oil explorer says it has struck what may turn out to be the largest oil find in Uganda, prompting brokers to upgrade ratings and target prices for the company.
Against a backdrop of broadly firmer metals prices, miners also rose, with gold prices hitting 18-month highs for a second consecutive session.
Randgold Resources, Fresnillo, Rio Tinto and BHP Billiton gained 0.2-1.5 percent.
Broker upgrades also lent support, with Antofagasta up 2.8 percent as Cazenove upped its rating to "outperform".
Eurasian Natural Resources bucked the sector trend, shedding 2.4 percent after the Kazakh mining group confirmed late on Wednesday that it was mulling over a cash bid for CAMEC.
BA BUOYANT
British Airways gained 5.5 percent as Goldman Sachs added the stock to its pan-European "conviction buy list" and raised the airline's price target.
BA is interested in UK rival bmi and has spoken with bmi's German owner Lufthansa, the UK flag carrier's chief executive Willie Walsh told the Evening Standard.
Construction group Balfour Beatty was the top large-cap gainer, up 7.9 percent after it said it has agreed to buy U.S. project management firm Parsons Brinckerhoff for $626 million and will ask shareholder to help fund the deal.
Kingfisher, Europe's biggest home improvements retailer, added 1.2 percent after posting a 35 percent rise in first-half profit, joining a growing list of store groups to defy analysts' fears while also warning of a slow recovery.
British retail sales were flat on the month in August against expectations for a small rise, with clothing sales exerting the biggest downward impact, official data showed on Thursday. (Editing by David Cowell)