By Simon Falush LONDON, Oct 13 (Reuters) - Britain's top share index was up 4.3 percent by midday on Monday, recouping some of last week's heavy losses as a government deal to pump billions of pounds into the troubled banking sector lifted market sentiment. Oil and mining stocks rebounded strongly as commodity prices recovered and some banking stocks gained but HBOS, Lloyds TSB, and Royal Bank of Scotland tumbled again as investors fretted that moves by the government to take stakes in the firms would limit returns. By 1106 GMT the FTSE 100 had gained 168.9 points to trade at 4,100.9 after falling 8.9 percent on Friday and haemorrhaging 21 percent last week, its biggest fall since 1987. The FTSE 350 banks index was up 3.7 percent after the British government said it would make capital investments worth 37 billion pounds ($64 billion) in RBS and a merged Lloyds TSB and HBOS. "Market sentiment is a bit more positive, the government has grasped the nettle and committed to a rescue plan," said Keith Bowman, equity strategist at Hargreaves Lansdown. "There's still a huge amount of nervousness and volatility around but we do seem to have taken a step in the right direction with some coordination from governments and some definite action." HBOS dropped 26.2 percent and Lloyds TSB lost 9 percent after the latter said it had renegotiated its agreed takeover of HBOS, dropping its offer to 0.605 of a Lloyds share for every HBOS share, down from the 0.833 agreed on Sept. 18. Royal Bank of Scotland tumbled 21 percent to 57.5 pence. RBS was trading at around 370 pence in January and peaked at over 600 pence in March last year. Barclays gained 6.9 percent after it said it would boost its capital by more than 6.5 billion pounds but expected to do so without government help. "I suspect that Barclays have shown the way by saying that they can go out to Asian, Middle Eastern investors and some of their own investors and saying we don't need to take this money from the government, so its quite a confidence statement," Paul Kavanagh, head of market strategy at stockbrokers Killik said. Standard Chartered gained 10.3 percent after it said it meets UK capital requirements and was well capitalised and highly liquid. FINANCIALS GAIN Other financial stocks also climbed on the government measures, with insurers Prudential, and Standard Life up 5.2 and 6.8 percent, while interdealer broker ICAP was up 11.1 percent. Energy stocks gained as oil climbed more than $3 a barrel, recouping some of Friday's 10 percent dive, as nervousness on the future of the world economy eased somewhat. BP, Royal Dutch Shell, BG Group and Cairn Energy advanced between 1.6 and 6.5 percent. Heavily pressured mining stocks also rallied as metals surged, with copper gaining over 7 percent and gold up, also recovering ground after last week's heavy losses. Anglo American, Kazakhmys, Eurasian Natural Resources, Rio Tinto and Lonmin strengthened between 5.8 and 11.5 percent. Shares in TUI Travel jumped 18.1 percent after Frankfurt-listed TUI, which owns 51 percent of the company, said it would sell its Hapag-Lloyd unit to German investors, increasing the prospects of it buying out the British unit. Click on. Retailers were supported on hopes that the bank recapitalisation moves would prevent a deep recession. Kingfisher added 0.7 percent, Marks & Spencer put on 4.6 percent, and Next gained 3.6 percent. (Editing by Greg Mahlich)

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