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* FTSE 100 closes 0.7 percent higher
* Shock UK Q3 GDP decline shrugged off
* Miners gain on hopes for increased demand
By Tricia Wright
LONDON, Oct 23 (Reuters) - Britain's top share index shrugged off a shock fall in UK GDP to close higher on Friday, buoyed by miners and banking stocks, and supported by robust earnings and economic news from the U.S.
The FTSE 100 closed up 35.21 points, or 0.7 percent at 5,242.57, having touched a 13-month high of 5,299.57 earlier in the session. It ended 1 percent lower on Thursday.
"We had the rather disappointing GDP figures come in, but I think traders are taking it that the figures give a better opportunity for the Bank of England to extend its QE programme," said Keith Bowman, analyst at Hargreaves Lansdown.
Britain's economy contracted in the third quarter of this year, quashing hopes the downturn was ending and instead marking the longest recession on record.
But the UK's blue-chip index showed limited reaction, paring gains slightly before recovering quickly to levels seen before the data, though the pound fell sharply and European stocks lost ground.
Banks gained, with investor sentiment also helped as Microsoft Corp's results smashed Wall Street expectations, and as sales of previously owned U.S. homes surged to their highest level in over two years in September.
Heavyweight HSBC rose 1.2 percent, while Standard Chartered , Barclays and Royal Bank of Scotland added 0.7 to 3.5 percent.
LLOYDS CRUNCH
Lloyds Banking Group put on 1.5 percent. The real estate arm of insurer Legal & General is in talks to cherry-pick troubled assets from Lloyds Banking Group in deals that could generate millions of pounds for the lender, sources close to discussions told Reuters.
Lloyds faces a crunch week over its plans to plug a 20 billion pound hole in its capital before Christmas, with a key decision resting with UK regulators.
Miners found support, with hopes for increased demand as corporate earnings recover. Anglo American, Kazakhmys, Xstrata, and Vedanta Resources were up 3.2 to 4.2 percent.
Energy stocks were also in favour, holding on to recent gains despite crude prices retreating.
BG Group was 0.5 percent firmer, while Royal Dutch Shell added 1.2 percent, shrugging aside a UBS downgrade to "neutral" ahead of upcoming results from the oil major.
Pharmaceuticals, mobile telecoms and fixed line telecoms were in negative territory.
GlaxoSmithKline lost 1.1 percent after Jefferies cut its stance to "hold" from "buy" ahead of the firm's quarterly results due next week, saying underlying earnings growth will slow into 2010.
Vodafone and BT dropped 1.4 percent and 3.2 percent, respectively, paring gains after they were boosted by AT&T's positive earnings on Thursday.
Overshadowed by the shock GDP data, the number of home loans approved by British banks in September jumped 76.8 percent on the same month a year ago, while car output fell at its slowest pace in 12 months. (Editing by Karen Foster)