* FTSE 100 edges up by 0.5 pct as charts hint at more gains
* Lloyds leads rally in financials
* Analyst comments hit Severn Trent, Morrison
By Toni Vorobyova
LONDON, Jan 7 Britain's blue chip share index
rose to a one-week high on Tuesday, with gains in financial
stocks pushing the FTSE 100 towards major technical resistance
Lloyds was the top gainer, rising 3.4 percent, as
investors bought the stock on expectations that the bank will
start paying dividends this year and that it will benefit from a
recovering British economy and housing market.
Lloyds is expected to announce a payout to shareholders on
its 2013 results, with StarMine consensus pointing to a dividend
yield of 0.4 percent this year, rising to 3.1 percent next year.
"Lloyds is a domestic story. If the property market is going
to do well, then the leverage you get out of Lloyds is great,
plus they are going to pay a dividend this year, so the income
funds will be buying them," said Zeg Choudhry, head of equities
trading at Northland Capital.
Bolstering the British economic recovery story, car sales
rose to their highest level since 2007 last year, data showed on
Tuesday, while British businesses reported strong growth and
Analysts at Bernstein Research highlighted Lloyds as the top
pure play on UK consumers, while noting that RBS looks
promising on valuation and that HSBC is likely to
increase its risk appetite in Britain.
RBS shares rose 1.9 percent, while HSBC - the biggest
constituent in the FTSE 100 - added 2.0 percent.
The gains helped boost the overall index, which was up 30.58
points, or 0.5 percent, at 6,761.31 points by 1517 GMT,
closing in on its Dec. 30 high of 6,768.44 points in what
technical analysts said was generally an upbeat picture.
Alongside financials, other sectors exposed to the economic
cycle such as consumer cyclicals and energy held up well as
investors made fresh bets for 2014.
"If you believe that there is some cyclical upturn - and
there does seem to be signs of that - then ... I think the
danger is that you remain too defensive. You've got to start to
think a bit more cyclical," said Paul Sedgwick, head of
investment at Frank Investments.
"I personally have been playing the cyclical recovery with
industrial names, or more cyclically-exposed engineering
companies, chemical companies."
Some of the more defensive stocks in utilities and food
retailers lagged the broader market on Tuesday, hit by cautious
comments from analysts.
Water company Severn Trent dropped 2.2 percent after
JP Morgan downgraded the stock to underweight, while supermarket
chain Morrison fell 1.2 percent after Barclays said
there was a risk it may step back from a pledge to deliver
positive like-for-like sales growth in the fourth quarter.