* FTSE 100 index up 0.4 percent
* Banks higher; StanChart update reassures
* Tate & Lyle knocked by RBS downgrade (Recasts)
By Jon Hopkins
LONDON, June 28 (Reuters) - Strength in heavyweight commodity issues and banks provided the main support for gains by Britain's leading share index at midday on Tuesday, as investors focused on optimism for a resolution of the Greek debt crisis.
The FTSE 100 index was 25.70 points, or 0.4 percent higher at 5,778.04 at 1052 GMT, adding to Monday's 0.4 percent advance. The index was below earlier highs, on expectations for a weaker opening on Wall Street.
Commodity issues provided the main prop for blue-chip gains
in London as the prices of base metals and Brent crude
Miner Vedanta Resources was the top sector performer, up 2 percent helped by late news on Monday that its long-delayed deal to buy a 40 percent stake in Cairn India got a boost as vendor Cairn Energy cut the price tag and split the sale into two tranches.
Cairn Energy shares rose 1.5 percent.
Banks were in demand, led by part state-owned Royal Bank of Scotland , ahead 3.6 percent after underperforming Monday's rally, as investors bet the Greek parliament will this week vote through austerity measures that are the price of further aid from international lenders.
"There is still a lot that could go wrong, but with the way markets have performed over the last couple of days, some are hoping that finally sentiment has turned a corner and it is time for a recovery," said David Jones, Chief Market Strategist at IG Index.
Standard Chartered was also a top gainer, adding 2.1 percent after saying in a trading update that staff cuts, coupled with growth in Hong Kong and other key Asian markets had put it on track for record profit in the first half.
WATERS FLOW
Blue-chip utilities were in demand after Monday's late bid move for mid-cap Northumbrian Water , with Severn Trent and United Utilities up 3.3 percent and 1.5 percent respectively.
In response, Evolution Securities upgraded its rating for Severn Trent to "add" and raised its target price for UU.
Tate & Lyle was the top FTSE 100 faller, shedding 2.2 percent as RBS downgraded its rating for the food ingredients firm to "hold" from "buy" on valuation grounds, with the stock approaching its 650 pence target price.
Telecom issues suffered after mid-cap C&W Worldwide issued a profit warning 10 weeks into its new financial year, citing a slump in orders, and said chief executive Jim Marsh had resigned.
C&W Worldwide was the top FTSE 250 faller, down 15.6 percent, hitting its lowest since its demerger last year.
Blue-chip telecoms peer BT Group shed 1.5 percent.
House prices in England and Wales fell 0.4 percent in May, data from the official Land Registry showed on Tuesday, with average residential property prices 2.2 percent lower than a year ago.
Britain's economy grew 0.5 percent in the first three months, official data confirmed, to be unrevised from earlier readings after a contraction of 0.5 percent in the final quarter of 2010.
"The reading gave little surprise to investors, who were expecting no change in the final reading, and is unlikely to change Bank of England Governor Mervyn King's stance that raising interest rates in the near term is unlikely to be well timed in the midst of slow UK growth," said Giles Watts, Head of Equities at City Index.
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