* Oils, miners gain on improved demand hopes
* Banks, insurers rally as risk appetite returns
By Jon Hopkins
LONDON, Aug 20 (Reuters) - Britain's leading share index gained 1.4 percent as stocks enjoyed a broad-based recovery on Thursday, with heavyweight oils and miners in demand as raw material prices rose while financials also rallied.
By the close, the FTSE 100 was 66.91 points higher at 4,756.58, having reversed earlier losses to close slightly higher on Wednesday.
The UK benchmark has gained 37 percent since hitting a floor in early March, and is up 6.8 percent so far this year. However, volumes on the index have been low on average in August, the height of the holiday season.
"The market seems to be kind of defying belief at the moment. There definitely seems to be support, with the dips reasonably shallow and a definite desire for investors to move in," said Tim Whithead, strategist at stockbrokers Redmayne Bentley.
"However, one wonders with cyclical stocks driving the advance and traditional defensives being left behind, if there was something to spook the market, whether this could be turned on its head."
Oil majors were the blue chip index's top gainers, with crude holding above $72 a barrel after industry data on Thursday showed a steep drop in U.S. oil imports and stocks.
BP, Royal Dutch Shell, BG Group, and Cairn Energy added 1.4 to 2.9 percent.
Miners also joined in the rally on hopes for increased demand for metals. Angtofagasta, Xstrata, Lonmin, Anglo American , Vedanta Resources, and Kazakhmys were up from 2.4 to 5.3 percent.
Rio Tinto, the world's second-largest miner, added 1.0 percent after posting a record drop in first-half profit, in line with market forecasts, and saying it was confident about the future after a tough 18 months.
Banks also rose, helped by sentiment from the successful placement of the Swiss government's stake in UBS. Barclays, Lloyds Banking Group, Royal Bank of Scotland, and HSBC took on 0.4 to 3.9 percent.
Insurers moved higher as equity valuations rose, with Prudential, Standard Life, RSA Insurance, and Friends Provident up 2.5 to 4.5 percent.
U.S. STOCKS HIGHER
U.S. blue chips were modestly higher by London's close, up 0.3 percent as investors digested a mixed bag of data.
U.S. initial jobless claims unexpectedly rose last week, but investors took heart from news the Philly Fed business activity index turned positive in August, breaking a 10-month run of contractions and beating even the most optimistic forecasts.
Domestic macro data was also mixed on Thursday, with British retail sales up twice as much as expected in July while government borrowing reached a record deficit last month.
"UK retail sales posted another decent rise in July, but the dire public finance figures -- which underline the need for tax rises/spending cuts -- suggest that this resilience will eventually fade," said Vicky Redwood of Capital Economics.
Among the minority blue chip fallers, broker comment had the most impact on Thursday.
Real estate stocks suffered as Credit Suisse cut its stance on the sector to "market weight" from overweight".
Land Securities, tagged a short-term "trading sell" by Deutsche Bank, shed 1.1 percent, and British Land lost 0.6 percent.
AstraZeneca fell 0.5 percent as Citigroup cut its stance to "hold" from "buy" on doubts about the firm's ability to offset looming patent losses with new drugs.
Diageo lost 0.3 percent after both ING and Evolution downgraded their ratings for the drinks group.
Among the mid caps, bus operators suffered after the Office of Fair Trading referred the local bus market excluding London to the Competition Commission for further investigation.
Stagecoach and Arriva suffered the most, down 4.4 and 2.1 percent, respectively.
(Editing by John Stonestreet)