* FTSE rises 0.2 percent
* Banks boosted on reports China to buy Portuguese bonds
* Arm climbs on Microsoft reports
By David Brett
LONDON, Dec 22 (Reuters) - Banks boosted Britain's top share index by midday on Wednesday, helped by reports China is ready to buy Portuguese bonds which eased European debt concerns.
ARM Holdings was the standout gainer, up 8.5 percent on reports Microsoft is working on a new version of its core Windows operating system for devices such as tablets, marking the first time that the software would run on processors designed by the British firm.
By 1154 GMT, the FTSE 100 was up 12.82 points, or 0.2 percent, at 5,964.62, having closed 60.19 points higher on Tuesday and marching towards a 6,000 level last seen June 2008.
Banks, which have a large exposure to European sovereign debt, rose after the Jornal de Negocios daily reported China is ready to buy 4 to 5 billion euros ($6.6 billion) of Portuguese sovereign debt to help the country ward off pressure in debt markets.
Traders said the report should help "stabilise sentiment".
Royal Bank of Scotland was among the top risers, up 1.5 percent.
However, there were potential clouds on the horizon for the UK. Official data showed the economy grew less than expected in the third quarter and the second quarter reading was lower than first reported.
"The FTSE seems determined to hit 6,000 before the year is out as even a weak GDP number cannot keep it in negative territory," Manoj Ladwa, senior trader at ETX Capital, said.
The index has gained 7.9 percent in December, on track for its biggest monthly percentage gain since July 2009.
The Bank of England's Monetary Policy Committee retained its three-way split at December's policy meeting, with growing worries about rising medium-term inflation risks.
SKY HIGH
BSkyB put on 1.8 percent, having earlier touched its highest since March 2004, as prospects improved of regulatory approval for News International's bid to buy the pay-TV operator.
Arm Holdings grabbed top spot on the blue-chip leaderboard on the back of the Windows-for-tablets media reports.
RBS analyst Didier Scemama said such an alliance could be a game changer for Arm: "The big event would be if this is a first step towards full support for Arm in notebooks, desktop and servers," he said.
Both Microsoft and Arm declined to comment on the reports.
National Grid, Britain's biggest utility, rose 0.7 percent, with traders citing the cold weather in the UK which is boosting demand for energy.
The world's largest cruise operator Carnival Corporation & Plc rose 2.4 percent as brokers raised their target prices following the firm's results on Tuesday.
And British Airways rebounded 1.9 percent as travel services limped back towards normal in parts of Europe after ice and snow caused widespread chaos.
In the U.S., Wall Street futures pointed to a slightly weaker open on Wednesday as investors wait for existing home sales data at 1500 GMT and the final estimate of third-quarter GDP at 1330 GMT.
(Editing by David Hulmes)