FTSE rises as Citi adds steam to banks rally

* FTSE turns positive, up 0.7 percent by mid-session

* Citigroup results help banks rally further

* Miners, oil stocks cap gains

By Rebekah Curtis

LONDON, July 18 (Reuters) - British blue-chip stocks were hight at midday on Friday, reversing early losses as better than expected results from U.S. bank Citigroup added steam to a rally in banks and offset weakness in commodity stocks.

By 1115 GMT the FTSE 100 .FTSE was up 36.5 points, or 0.7 percent, at 5,322.8 points. The index closed up 2.6 percent on Thursday, when a surge in battered banks was fuelled largely by better than expected results from JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz).

U.S. stock futures also reversed an earlier slide and rose after the results from Citigroup. The largest U.S. bank posted a smaller than expected $2.5 billion second-quarter loss, suffering writedowns and credit losses tied to deteriorating credit markets and the slumping economy.

The net loss was 54 cents per share and compared with a year-earlier profit of $1.24 per share, or $6.23 billion.

"The net share loss ... is coming in better than consensus," said Martin Slaney, head of derivatives, at GFT Global Makets.

"Things aren't as bad as (they had) been priced in. It's going to help UK banks ... But we've still got plenty of the second quarter earnings season to go, so possibly next week it will be a different story."

Among banks, which also staged a stellar rally on Thursday, Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) was up 6.9 percent, Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) rose 5.3 percent and HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) added 2.8.

"These securities have been very badly beaten up," said Edward Menashy, an economist at Charles Stanley. "(But) We know one thing -- no central bank will allow a major bank to fall."

The British macroeconomic backdrop is proving a challenge for the banking sector as growth slows and inflation remains stubbornly high.

The latest batch of data on Friday showed public borrowing hit record levels in the first quarter of the financial year, threatening to breach the restrictions the government set itself on how much debt it can take on.

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