* FTSE 100 edges up by 0.2 pct
* Banks add most points to index
* Sainsbury and Morrison shares fall
* Barclays strategists forecast weak sales for retailers
By Sudip Kar-Gupta
LONDON, Jan 7 Britain's top equity index steadied on Tuesday as stronger bank stocks offset weaker retail stocks, and many traders kept a longer-term positive outlook, helped by signs of a gradual UK economic recovery.
The blue-chip FTSE 100 index, which rose 14.4 percent in 2013 to post its best annual gain since 2009, edged up by 0.2 percent, or 14.15 points, to 6,744.88 points in early session trading.
A rise in banking groups HSBC and Lloyds together added the most points to the FTSE 100, with traders and fund managers betting on the sector recovering as the broader British economy strengthens.
"They've had a good run but I think there's more to come, particularly as the economy picks up a little bit more," said Cavendish Asset Management fund manager Paul Mumford.
New signs the British economy is slowly recovering from the effects of the 2008 global financial crisis came on Tuesday with data showing that UK new car sales had hit a 5-year high.
The British Chambers of Commerce (BCC) also said in a survey that UK businesses had reported strong growth and rising confidence in the fourth quarter of 2013.
SUPERMARKET RETAILERS FALL
One part of the stock market that underperformed on Tuesday was the food retailer sector, with stocks such as J Sainsbury and Wm Morrison falling.
Marks & Spencer recovered from a 0.8 percent fall in the previous session to rise 1.8 percent, ahead of its trading update later in the week although many analysts are forecasting weak numbers.
Supermarket retailers have been hit by losing market share to German rivals Lidl and Aldi, while clothing companies have had to contend with fierce competition on the High Street, with Debenhams issuing a profit warning in December.
Barclays equity strategists forecast lower sales for Sainsbury, Morrison and Tesco, and warned M&S could miss its gross margin target.
Sucden Financial's Andrew Crook said in spite of weakness in the FTSE caused by dips in sectors such as the retailers, investors should look to use such pullbacks to add to equity positions due to the favourable long-term outlook.
"I would err towards buying on the dip," he said.