FTSE hits 2-mth closing high on banks, U.S. GDP

* FTSE 100 closes up 1.3 percent * Financials, property stocks rise as sentiment improves

* Sainsbury soars on market talk of bid interest

By Dominic Lau

LONDON, Aug 28 (Reuters) - Britain's leading share index rose 1.3 percent on Thursday as data showing the U.S. economy grew stronger than initially estimated in the second quarter boosted financials and retailers, while acquisition talk lifted grocer Sainsbury (SBRY.L: Quote, Profile, Research, Stock Buzz).

The FTSE 100 .FTSE closed up 73.1 points at 5,601.2, hitting its highest closing level in two months and extending the previous session's 1.1 percent gains.

"The better-than-expected data out of the U.S. is helping the market today," said Darren Winder, equity strategist at Cazenove.

"The other thing helping the market fundamentally is that the yield on 10-year gilt <GB10YT=RR> is now down to 4.5 percent, so the hurdle for equities to climb to match the yield on bonds is falling."

He said investors would continue to be concerned about readings on the economy, which have been mixed.

"We have got the weak economic conditions to contend with but the market has been expecting that for so long, so they are not really coming in as a surprise to equity investors," he said.

Banks were the top-weighted gainers, with HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), HBSC (HSBA.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) rising 2.5 to 5.8 percent.

Within the financial sector, RSA Insurance (RSA.L: Quote, Profile, Research, Stock Buzz) climbed 5.7 percent as traders cited renewed market talk of bid interest from Zurich Financial Services (ZURN.VX: Quote, Profile, Research, Stock Buzz).

Both RSA and Zurich Financial declined to comment.

The U.S. economy grew at a solid 3.3 percent annual rate in the second quarter, much stronger than first thought, as consumer spending and net exports were more robust than initially estimated and inventories fell less sharply. [ID:nN28278433]

In the UK, Bank of England policymaker David Blanchflower said two million Britons may be out of work by Christmas and big cuts in interest rates are needed now to stop the economy heading into a deep and prolonged slump. [ID:nLAC002917]

Sainsbury (SBRY.L: Quote, Profile, Research, Stock Buzz) jumped nearly 8 percent to 344 pence as traders cited market talk of bid interest in the UK supermarket group. Sainsbury declined to comment.  Continued...