* FTSE closes up 0.4 pct at 6,808.87 points

* Rise in Lloyds adds most points to FTSE 100

* Sainsbury (Berlin: SUY1.BE – news) falls as Bernstein cuts price target

By Sudip Kar-Gupta

LONDON, May 1 (Reuters) – Britain’s blue-chip share index hit its highest level in about two months on Thursday, rising for a fourth straight session as gains at Lloyds bank buoyed the market.

The FTSE 100 index ended up by 0.4 percent, or 28.84 points, at 6,808.87 points, its highest close since March 4. Trading volumes were relatively thin, with much of Europe closed for the May 1 public holiday.

Shares of Lloyds surged 5.5 percent to add the most points to the FTSE, after the part-nationalised lender posted a 22 percent rise in first-quarter pre-tax profits.

Lloyds also said it would apply to the Bank of England in the second half to start paying dividends again.

“Lloyds came out with a solid set of numbers which confirmed a turnaround in their business,” said Prime Wealth Group senior trader Dafydd Davies.

Davies said his firm had been buying Lloyds shares over the last couple of days and that the stock could rise to about 90 pence from its Thursday level just below 80 pence.

Oil and gas company BG also rose, by 3.3 percent, after posting a smaller-than-expected drop in first quarter profits.

“The market is certainly getting help from positive news from several companies, with Lloyds results broadly reflecting a growth in the economy,” said Hargreaves Lansdown (LSE: HL.L – news) equity analyst Keith Bowman.

Data showing growth in UK manufacturing also supported market sentiment. However, supermarket operator Sainsbury was a drag on the market, falling 3.2 percent after brokerage Bernstein reduced its price target on the company, and the FTSE’s slim gain reflected some caution among investors.

The FTSE 100 hit a peak of 6,867 points in late January, which was close to its highest level since early 2000, but then slipped due to concerns over a downturn in emerging markets and geopolitical tensions in Ukraine.

MB Capital trading director Marcus Bullus said he would look to see if the FTSE could break above the 6,850-point level before adding to “long” positions betting on more gains.

Beaufort Securities sales trader Basil Petrides also said the FTSE could drop back briefly after its recent rally.

“My radar suggests that profit taking is imminent,” he said. (Additional reporting by Atul Prakash; Editing by Susan Fenton)