* FTSE up 1.2 percent, above 5,000 for first time since Oct
* Oils gain as crude price rises above $72/bbl
* Banks in demand as financials rally
By Jon Hopkins
LONDON, Sept 9 (Reuters) - Britain's FTSE 100 share index closed above the 5,000 level for the first time since Oct 2008 on Wednesday, rising 1.2 percent on the back of strong oil and bank stocks, as well as early gains on Wall Street.
By the close the index was 56.96 points higher at 5,004.30, extending the recent rally to a fourth straight session.
"Rising oil prices and the return of M&A interest has kept the FTSE rally going, helping the index pop back above the 5,000 level," said Mic Mills, senior trader at ETX Capital.
"But while no one wants to be left behind the next move upwards, that 5,000 level will need more help to be breached significantly," Mills added.
The index has rebounded 45 percent since hitting a floor in March, but remains around 8 percent below its level prior to the collapse of Wall Street firm Lehman Brothers a year ago, which sent shockwaves through the global financial system.
Oil and gas producers were the best blue chip performers as crude prices moved above $71 a barrel. BG Group, BP, Royal Dutch Shell, and Cairn Energy added 1.9-4.2 percent.
Most banks moved higher, with HSBC, Barclays, Royal Bank of Scotland, and Standard Chartered up 1.0-3.2 percent. But Lloyds Banking Group missed out, falling 0.7 percent.
British Airways was the top FTSE 100 riser, up 5 percent, drawing strength from recent signs of a pick-up in the air travel industry and hopes for takeovers..
Thomas Cook Group was also in demand, up 4.6 percent on market talk that banks holding insolvent German retailer Arcandor's 43.9 percent stake in travel firm are close to announcing a placing of the stock.
The move would eliminate an overhang which has weighed on Thomas Cook shares since Arcandor filed for insolvency in June.
Cadbury, however, slipped 0.1 percent. Its shares have rocketed since it was announced on Monday that it had rejected a 10.2 billion pound bid approach from North America's biggest food group Kraft.
Kraft is in talks to arrange about $8 billion of financing for the bid, Bloomberg said. And UK newspaper the Times said chocolate group Hershey Co had appointed JP Morgan to advise on its options as it considers a counterbid for Cadbury.
Lonmin was the biggest blue chip faller, dropping 2.8 percent as Merrill Lynch downgraded the shares to 'neutral' from 'buy', saying prospects of a merger with Xstrata were "less than certain" and the miner had met its price target sooner than expected.
Randgold Resources fell 1.9 percent as the price of gold edged back below $1,000 an ounce.
Other miners were mixed, with Xstrata, Kazakhmys, and Anglo American up 0.5 to 2.7 percent, but Rio Tinto, BHP Billiton, Fresnillo, and Eurasian Natural Resources fell 0.1 to 1.4 percent.
WALL STREET HIGHER
U.S. blue chips saw gains, adding 0.8 percent by London's close as strength in industrial shares on positive broker comment was countered by weakness in retailers after data showed a decline in weekly chain store sales.
Rising optimism about a recovery in the British economy was highlighted by figures showing exports rose at their fastest monthly pace since the start of 2008 in July, keeping the country's trade gap on a narrowing trend.
The Nationwide Consumer Confidence index rose to 63 in August from an upwardly-revised 61 in July, the highest since May 2008, reflecting Britons' more upbeat view on current and future conditions as well as a greater willingness to spend.
A separate survey by the Recruitment and Employment Confederation and accountants KPMG showed the number of job appointments rose last month for the first time in over a year.
UK house prices have finally bottomed out but a return to growth will be slow and steady as supply gradually increases, a Reuters poll showed on Wednesday. (Editing by Greg Mahlich)