By Alistair Smout
LONDON (Reuters) - The FTSE 100 marked a three-week closing high on Thursday as Lloyds led banks higher in the sector's strongest session in two months.
Lloyds jumped 2.9 percent after both Bernstein and Morgan Stanley gave a target share price of 100 pence for the bank, currently trading at 73 pence, as the British government prepares for its transfer into full private ownership.
The banking index climbed 2.4 percent, its biggest daily rise since early July.
"Financials have been notably strong, and Lloyds had a good upgrade ... With smaller government ownership and a prospect of a dividend coming, we have seen the worst in Lloyds," Zeg Choudhry, head of equities trading at Northland Capital Partners, said.
Airlines, which fell sharply on Wednesday after a profit warning from Ryanair, were also strong risers, with easyJet and IAG both among top gainers after reporting much better passenger numbers.
At the close, the blue-chip FTSE 100 index was up 57.70 points, or 0.9 percent, at 6,532.44, posting its highest close since August 15. Financials, including banks, insurers and asset managers, added more than 27 points to the index.
Choudhry had targeted a close above 6,535 to confirm a breakout from the recent 50-point range which the index has been stuck in since the middle of August.
Europe has shown signs of economic recovery, yet the European Central Bank said on Thursday it was ready to provide more stimulus if necessary to help the euro zone's economy further.
However, despite improving economic data and continued monetary support, international tensions over Syria, where Russia and China have warned the United States against military intervention, have pegged the FTSE 100 back in recent weeks.
Matt Basi, head of UK sales trading at CMC Markets, said that uncertainty over Syria would "cap the upside for now."
"There is now a lot of cash on the sidelines, however, where people have pulled back from equities, so if the Syrian crisis is dealt with swiftly and in a manner that doesn't cause major panic ... then there's definitely room for good upside for the FTSE 100, and we could break through new highs."
(Editing by Ruth Pitchford and Susan Fenton)