By Kit Rees
LONDON (Reuters) - The UK's top share index rose from a two-month low on Monday, joining in a broader rally among risk assets sparked by progress in U.S. tax reforms, which lifted shares in British banking stocks.
The blue chip FTSE 100 <.FTSE> index was up 0.8 percent at 7,358.81 points by 0935 GMT, in line with a broadly positive continental European market.
Financials were the biggest boost to gains, adding around 20 points to the index as shares in HSBC <HSBA.L>, Barclays <BARC.L> and Lloyds <LLOY.L> all rose between 1 percent to 3 percent.
"For all the other indices around the world, the tax reform is something everyone's been keeping an eye on, so that's definitely the main driver in the U.S. and I think that's trickling over to Europe as well. We're see a bit of a relief rally," John Moore, trader at Berkeley Capital, said.
Banks are seen as the biggest beneficiaries of a cut in the corporate tax rate in the United States, and their shares also tend to see the biggest reactions when investors buy into risky assets.
Conversely, shares in more defensive stocks, such as precious metals miners Fresnillo <FRES.L> and Randgold Resources <RRS.L>, were among the worst performers, both down 1.9 percent and 0.7 percent respectively.
While individual stock moves were relatively limited among both blue chips and mid caps <.FTMC>, investors were looking ahead to a key meeting between British Prime Minister Theresa May and European Commission President Jean-Claude Juncker.
Last week strength in sterling on the back of optimism over Brexit talks weighed on the FTSE 100, which ended the week with a 1.5 percent loss. The index fell to a two-month low as its predominantly dollar-earning constituents were hit by a rise in the currency.
On Monday, the pound was subdued ahead of the Brexit summit, which in turn supported the FTSE 100. Shares in heavyweight overseas earners British American Tobacco <BATS.L> and Diageo <DGE.L> advanced 0.4 percent and 0.7 percent respectively.
"We've already kicked off the day with a weak pound which has helped the FTSE drive higher, so we'll be watching those talks throughout the day, keeping a close eye on cable because, as we saw last week, that can move pretty quickly," Berkeley Capital's Moore said, referring to the sterling-dollar exchange rate.
(Reporting by Kit Rees; Editing by Raissa Kasolowsky)