By Michael Taylor LONDON (Reuters) - Britain's benchmark stock index edged up early on Tuesday as stake building talk helped boost Royal Bank of Scotland after the banking sector's heavy losses in the previous session. At 0811 GMT the FTSE 100 was 10.5 points, or 0.2 percent higher at 6,018.1, with many traders looking ahead to the Bank of England's (BoE) interest rate decision on Thursday. The central bank's Monetary Policy Committee is widely expected to leave interest rates at 5 percent as it grapples with a combination of slowing growth and rising price pressures. Across the Atlantic, U.S. stocks fell on Monday on renewed fears the credit crunch has yet to run its course, while Asian stocks also lost ground overnight. Banking shares again featured heavily on the UK's blue-chip index, a day after stricken bank Bradford & Bingley fell 24 percent after it slashed the price of its emergency fundraising to secure a private equity lifeline and issued a profit warning. Royal Bank of Scotland (RBS) gained 4.2 percent as traders cited market talk of buying by British activist fund the Children's Investment Fund (TCI), and a short squeeze ahead of the bank's rights issue deadline on Friday. RBS declined to comment, while TCI was not immediately available for comment. Among other lenders, HBOS and Lloyds TSB tacked on 1-2.1 percent, while Barclays and HSBC lost 0.4-0.9 percent. "We don't seem to have left all the problems with the banking system as it looked likely a few weeks ago. We thought we'd come to the end of the credit crunch but Bradford & Bingley reminded us yesterday that certainly the mortgage banks still have problems," said Edward Menashy, an economist at Charles Stanley. "The banking section was very weak yesterday and inevitably after a period of weakness you get a very-short term relief the following day," he added. "The Royal Bank of Scotland rights issue looks to be a little bit safer today than it felt yesterday." Further on the upside, British Energy, whose shares rose over 3 percent on Monday, added 0.5 percent on persistent market talk of bid interest. Home Retail advanced 2.3 percent after Seymour Pierce raised its rating to "buy" from "hold". Mobile phone company Vodafone Group climbed 0.7 percent after Italian newspaper MF said it will make a bid in the next 24 hours to buy all of broad band operator Tiscali, citing sources close to Vodafone. It said Tiscali was valued at 1.6 billion euros, including tax credits. Among reporting companies, United Utilities gained 0.5 percent after it said full-year underlying operating profit rose 7 percent and said a 1.5 billion pound hand-out to shareholders will take place in August. Airlines also featured in positive territory, after Ryanair Holdings posted a 20 percent rise in full-year net profit but warned that if oil prices stay at around $130 a barrel it would only expect to break even in the year to the end of March 2009. British Airways added 1 percent. In commodity companies, heavyweight oil shares were largely down after U.S. crude prices fell to about $127 a barrel. BP shed 0.7 percent and rival Royal Dutch Shell was 0.5 percent lower. But BG Group rose 1.1 percent to buck the trend as Brazil's state oil company Petrobras was set receive the first shipment of liquefied natural gas for its Pecem terminal in July, which is supplied by the British company. With metal prices steady, miners to fall included Vedanta, ENRC and Rio Tinto. Britain's biggest military contractor BAE Systems added 0.9 percent after it won a $1.66 billion fixed price contract to supply the U.S. Army with 10,000 medium tactical vehicles, the Pentagon said late on Monday. | 
