UPDATE 2-UK blue chips hit 10-month high as bank and energy stocks gain

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* FTSE 100 highest since late February 2020

* Oil prices surge to 11-month highs

* Food retailer Greggs says sales decline slowed

* FTSE 100 up 3.5%, FTSE 250 up 1.2% (Updates to market close, adds analyst comments)

By Shashank Nayar and Shivani Kumaresan

Jan 6 (Reuters) - Britain's blue-chip FTSE 100 index ended at its highest since February on Wednesday, led by banking and energy stocks as investors bet on more U.S. stimulus and crude oil prices jumped after Saudi Arabia agreed to cut more output than expected.

The exporter-heavy FTSE 100 index .FTSE rose 3.5%, clocking its third consecutive session of gains. Lenders HSBC HSBA.L , Barclays BARC.L and Standard Chartered STAN.L provided the biggest boost with gains between 8% and 9.6%.

The mid-cap FTSE 250 index .FTMC was up 1.2%.

Investors globally eyed a Democratic sweep of the U.S. Senate that could result in a bigger fiscal stimulus. we get past the U.S. political situation, COVID is going to be increasingly front and centre," said Craig Erlam, senior market analyst at OANDA.

Oil heavyweights BP BP.L and Royal Dutch Shell RDSa.L rose almost 6.5% as crude prices gained after Saudi Arabia said it would make additional, voluntary oil output cuts of 1 million barrels per day in February and March. O/R

Investors also looked past the near-term effects of the new lockdowns imposed to curb a surge in coronavirus cases to bet on a quicker economic recovery.

"There is huge liquidity being infused by the central bank which will continue to support markets in addition to an extremely positive 2021 growth outlook," said James Gutman, head of investment portfolios at Dolfin Financial.

British stocks began the year on a positive note, boosted by fresh stimulus, and the government's aim to vaccinate around 14 million of the most vulnerable against the COVID-19 virus by mid-February.

The world's largest exhibitions group Informa Plc INF.L rose 6.4% even after forecasting a more than 70% plunge in its 2020 profit. baker and fast food retailer Greggs GRG.L closed higher at 7.8% after it said sales decline had slowed, but warned it does not expect profit to return to pre-pandemic levels until 2022.