* FTSE 100 up 0.6 pct; midcaps up 0.7 pct
* Guidance cut hammers WPP, worst daily performance since 1998
* Lloyds gains after update
* Competition warning hits Hastings (Updates prices, add details; adds LONDON dateline)
MILAN/LONDON, Oct 25 (Reuters) - UK shares closed higher on Thursday, joining a modest rebound across European stock markets as Lloyds Bank led financials higher following positive results and investors sought out defensive stocks, even as WPP suffered its worst day since 1998.
The UK's top share index was up 0.6 percent, just holding above 7,000 after earlier testing March lows, as some investors sought out bargains and Wall Street delivered a strong comeback after heavy losses on Wednesday when the tech-heavy Nasdaq had its worst day since 2011.
The more domestically focused mid-cap index also rose, closing up 0.7 percent.
UK markets underperformed those in France and Spain however, as well as the euro-zone STOXX which was lifted by a batch of solid corporate results.
David Madden, market analyst at CMC Markets UK, reckons that's a sign that investors are still not overly confident the wider sell-off is over given lingering concerns about Italy's budget, slowing corporate earnings growth, rising U.S. interest rates and Brexit.
The European Central Bank on Thursday stuck to its plan to roll back its unprecedented stimulus measures, even as the growth outlook continues to darken.
One of the biggest comebacks in the choppy session was by struggling department store chain Debenhams. Its shares touched a new low of 8 pence after it reported a full year loss and outlined plans to shut stores before gaining 11 percent by mid-afternoon. The shares, which have plunged 80 percent this year, closed up 9 percent on the day.
Lloyds Bank was also in demand, rising 1.9 percent and tracking strength across the European banking sector, after the British lender posted a higher-than-expected profit for the third quarter.
"Decent performance from Lloyds, but the risks remain from its exposure to the UK market, both unsecured and mortgage lending," said Neil Wilson, an analyst at Markets.com.
The bank shrugged off fears of a no-deal Brexit and pledged to keep pumping credit into the economy regardless of the outcome of negotiations between Brussels and London.
Investors punished WPP which lost as much as 23 percent at one point after a major downturn at its creative agencies in New York and London forced it to cut its sales and profit forecasts, ramping up the pressure on new boss Mark Read.
"What has been interesting is that WPP's results come after its peers Omnicom, Interpublic and Publicis all published Q3 updates that were well received," Liberum analyst Ian Whittaker wrote in a note.
"North America looks to be the main culprit ... but what is more concerning is that the language suggests significant client losses in Media, which is the highest margin business, in both the UK and North America," he added.
The shares later pared some losses to trade down 14 percent for its worst day in two decades, leading the fallers on the FTSE.
Drugmakers were heavy fallers, too, with AstraZeneca and Shire down 2 percent and 1.3 percent respectively, making the healthcare sector the biggest drag on the FTSE.
Investors shed stocks exposed to U.S. drug policy on expectations that U.S. President Donald Trump will later on Thursday detail efforts to curb drug prices.
Among midcaps, Hastings Group fell 13.7 percent after the insurer warned of continuing competition, even though gross written premiums for the first nine months rose as the cost of motor insurance policies grew in Britain. (Reporting by Danilo Masoni and Josephine Mason Editing by Richard Balmforth and Kirsten Donovan)