Banks push FTSE higher, M&S sales boosts retailers

                                
 * FTSE up 0.6 pct, Investec sees index at 6,600 by end-2011
                                
 * Banks gain, Lloyds rises on break-up hopes
                                
 * Investors swoon over M&S update
                                
 
                                
 By David Brett
                                
 LONDON, April 6 (Reuters) - Britain's top shares rose by
midday on Wednesday, as a sales beat by Marks & Spencer lifted
retailers, while Investec said it sees the FTSE at 6,600 by
end-2011 with banks and industrials among its preferred sectors.
                                
 "We argue that equities remain undervalued ... unlike HMG
(her majesty's government), or the consumer, corporate UK has
weathered the downturn well," Investec analysts said.
                                
 "While corporates will continue to pay down debt, in
uncertain times, the outlook for M&A and dividend income remains
positive. Earnings momentum has been strong."
                                
 The broker said market yield, relative to the long bond,
remains near a 30-year low while the All Share trades <.FTAS> on
a modest 2012 estimated price to earnings ratios of 9.3 times.
                                
 Investec recommends biasing portfolios towards certain key
defensive sectors, banks and industrials.
                                
 Banks <.FTNMX8350> bounced off the previous session's falls
despite Moody's cutting the credit ratings of seven Portuguese
banks, sending the country's bond yields above 9 percent.
                                
 Lloyds Banking Group <LLOY.L> rose 3.8 percent.
                                
 "There's talk that Lloyds may avoid a call for a break-up of
its business by the Independent Commission on Banking, that's
acted as a bit of a catalyst along with a touch of bargain
hunting," a London-based trader said.
                                
 Investors took heart from less hawkish minutes from the U.S.
Federal Reserve's March 15 meeting. [ID:nFEDAHEAD]
                                
 The FTSE 100 <.FTSE> was up 33.56 points, or 0.6 percent, at
6,040.62 by 1035 GMT, having closed down 0.2 percent on Tuesday,
ahead of policy decisions from the Bank of England and European
Central Bank on Thursday. [ID:nTOPNOW1]
                                
 A shock fall in British industrial output in February raised
doubts of a rate hike in the UK. [ID:nLDE7350T8]
                                
 "The data suggests that GDP estimates for the first quarter
are likely to disappoint both the Bank of England and the Office
for Budgetary Responsibility -- reducing the likelihood of a
rise in interest rates tomorrow, or indeed in this half of the
year," Schroders' European Economist Azad Zangana said.
                                
 
                                
 M&S SURPRISE
                                
 Retailers provided the main focus for investors after Marks
& Spencer <MKS.L>, up 5.8 percent, said in an update it had not
seen a major deterioration in consumer confidence recently.
                                
 "With the shares trading on just 9.7 time our 2011 EPS
forecast, we do not think the market is accurately reflecting
the opportunity offered by the new management team and new
strategy," Espirito Santo Investment Bank said.
                                
 Fashion retailer Next <NXT.L> rose 3.7 percent.
                                
 Tesco <TSCO.L> was up a more modest 0.4 percent after
Liberum cut its rating to "hold" from "buy" and downbeat comment
from Citigroup ahead of results due on April 19.
                                
 Elsewhere, TUI Travel rose 3 percent after Citigroup raised
its rating on the tour operator to "hold" from "sell", while
FTSE 250 <.FTMC> peer Thomas Cook <TCG.L> climbed 3.2 percent as
its rating was raised to "buy" from "hold".
                                
 Miners <.FTNMX1770> and energy <.FTNMX0530> stocks were the
main supports for the FTSE 100, rising with commodity prices as
Brent crude <LCOc1> hovered near multi-year highs on unrest in
the Arab world and gold hit a fresh all-time high $1,460.40 as
investors bought into its safe haven qualities on worries over
inflation and a weaker dollar.
                                
 Miner Vedanta <VED.L> added 1.3 percent as it took a step
closer to its purchase of Cairn's <CNE.L> Indian assets.
                                
 Ex-dividend factors knocked 0.96 point off the FTSE 100 on
Wednesday, with Pearson <PSON.L> and Wolseley <WOS.L> trading
without their payout attractions.
                                
 UK housebuilders Taylor Wimpey <TW.L>, Barratt Development
<BDEV.L> and Redrow <RDW.L> fell up to 3 percent after Citigroup
cut all three stocks to "hold" from "buy" on valuation grounds.
                                
 Wall Street was set to extend recent gains that have seen
key indexes hit their highest since 2008, while technical
analysts said near the UK FTSE trend looks positive.
                                
 "Although the close was slightly lower (on Tuesday), the
chart pattern still suggests that traders have a bias to the
upside although they continue to remain reluctant to buy
strength," Autochartist analyst James Hyerczyk said.
 (Editing by Hans Peters)