FTSE off lows, banks recover on Irish rescue talk

* FTSE down 0.1 percent

* Banks recover on Ireland rescue talk

* Commodities hit by China rate hike fears

By Nia Williams

LONDON, Nov 12 (Reuters) - Britain's top share index pared losses on Friday after market talk of an EU rescue package to resolve Ireland's debt woes sparked a recovery in the banks.

An Irish Finance Ministry spokesman said the rumours of a bailout were untrue but by 1157 GMT, the FTSE 100 <.FTSE> was down 7.28 points, or 0.1 percent at 5,807.95, recovering from a session low of 5,711.73.

"These rumours could all be complete puff and nonense but the market likes it," Yusuf Heusen, senior sales trader at IG Index said.

Royal Bank of Scotland was one of the top performers on Britain's blue chip index, adding 2.7 percent and reversing losses from Thursday when investors fretted over the knock-on effect of any possible Irish default.

RBS has the second biggest exposure, 5.020 billion euros, to Irish sovereign debt, based on data supplied to regulators under a stress test conducted in July. [ID:nLDE6AA119]

Lloyds and Standard Chartered also climbed 0.7 and 1 percent respectively as the banking sector <.FTNMX8350>, which had languished near the bottom of the index in early trade pared losses.

Rolls-Royce was the top FTSE 100 gainer, up 4.1 percent in an extension of the previous session's gains, buoyed by an update from the firm saying the A380 engine failure was confined to one component in the company's Trent 900's turbine. Investec said the "clarity is a positive".

Shares in the enginemaker had fallen more than 10 percent since Nov. 3 when Qantas Airways suspended flights of its Airbus A380 planes after the failure of a Trent 900 caused one of its aircraft to make an emergency landing.

Rolls-Royce said it now expected underlying profit growth for the full year to be slightly lower than previously expected because of costs associated with the blowout. [ID:nLDE6AA1VJ]

COMMODITIES HIT BY CHINA WORRIES

Commodity-related stocks were the top fallers in the index as the market digested Chinese data showing inflation hit a 25-month high in October and bank lending blew out, fuelling concerns the economy is overheating. [ID:nTOE6AA03C]

Investors now face the prospect of Chinese authorities taking steps to accelerate fiscal tightening and reduce stock market speculation by raising interest rates, increasing bank reserve requirements and allowing the currency to appreciate.

Mining <.FTNMX1770> and energy <.FTNMX0530> stocks retreated with UK-based Kazakhmys the top FTSE faller, down 2.6 percent.

Global miner Anglo American and platinum producer Lonmin both dropped around 2.2 percent on the prospect that the world's largest commodities consumer might reduce requirements.

The FTSE 100 hit a 29-month high earlier this week in the aftermath of a second round of quantitative easing from the U.S. Although the index has retreated in the last few days, technical analysts said overall the trend remained bullish.

"Key support area to watch is set around 5,700/5,750. As long as this area is not penetrated, a technical rebound remains the most probable scenario in the forthcoming days with 5,896 as target," Nicolas Suiffet, technical analyst at Trading Central said.

(Editing by Jane Merriman)