* FTSE 100 up 1.3 percent
* Commodity stocks gain on firmer metal, crude prices
* Shock UK Q3 GDP decline shrugged off
By Simon Falush
LONDON, Oct 23 (Reuters) - Banks and commodity stocks pushed Britain's top share index up 1.3 percent by midday on Friday, as investors shrugged off a shock fall in UK GDP and looked to Wall Street's open after it made strong gains the previous day.
By 1112 GMT, the FTSE 100 was 67.41 points higher at 5,274.77, after closing 50.49 points, or 1 percent lower, on Thursday.
British third-quarter gross domestic product (GDP) shrunk unexpectedly data showed on Friday, quashing hopes the downturn is ending and 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.
The gains were largely driven by commodity stocks whose exposure is mostly global rather than to the domestic economy.
Metal prices were firmer, finding support as the dollar weakened to a 14 month low against the euro.
Kazakhmys was up 4.8 percent, while Anglo American, Rio Tinto, Xstrata, Lonmin, and Fresnillo gained 1.9 to 3.5 percent.
However, the GDP data made investors nervous about whether the gains could be sustained.
"I think there is definitely a risk that the rally on the FTSE may have been overdone," said David Jones, chief strategist at IG Index.
"If there is anything that can put a ceiling on the strength (in equities) that we have seen over the last couple of months it is a surprise number like this," Jones said.
But energy stocks were higher as oil traded above $81 per barrel.
BG Group was 1.5 percent firmer, while Royal Dutch Shell added 1.4 percent shrugging aside a UBS downgrade to "neutral" ahead of upcoming results from the oil major.
BP was 1.5 higher percent after The Times newspaper reported the firm had held talks with Ghana National Petroleum over a possible joint bid for a stake in the Jubilee deepwater field in Ghana, which contains up to 1.8 billion barrels of oil.
Tullow Oil which is a partner in the Jubillee field gained 0.6 percent.
SKY RISES
Pay-TV firm BSkyB gained 0.5 percent after it added 94,000 net new customers in the first quarter, at the top end of analyst expectations.
Overnight on Wall Street, the Dow closed back above 10,000 after quarterly results from insurer Travelers and regional bank PNC Financial boosted financial stocks.
After the bell, online retailer Amazon.com beat expectations on earnings, reinforcing the idea that corporate profitability had stabilised.
UK banks benefited from the improved sentiment. Standard Chartered, Lloyds Banking Group, Barclays, HSBC and Royal Bank of Scotland rose 1.9 to 2.8 percent.
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.
Data due across the Atlantic on Friday includes U.S. existing home sales for September, due out at 1400 GMT.
Defensive pharmaceuticals and fixed line telecoms were the only FTSE sectors in negative territory.
GlaxoSmithKline lost 0.7 percent after Jefferies cut its stance to "hold" from "buy" ahead of the firm's Q3 results due next week, saying underlying earnings growth will slow into 2010.
BT was down 1.9 percent, paring gains after it was boosted by AT&T's positive earnings on Thursday. (Additional reporting by Harpreet Bhal; editing by Karen Foster)