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* FTSE 100 edges up by 0.4 pct as charts hint at more gains
* Lloyds leads rally in financials
* Analyst comments hit Severn Trent, Morrison
By Toni Vorobyova
LONDON, Jan 7 (Reuters) - Britain's blue chip share indexrose to a one-week high on Tuesday, with gains in financialstocks pushing the FTSE 100 towards major technical resistancelevels.
Lloyds rallied 3.0 percent, as investors bought thestock on expectations that the bank will start paying dividendsthis year and that it will benefit from a recovering Britisheconomy and housing market.
Lloyds is expected to announce a payout to shareholders onits 2013 results, with StarMine consensus pointing to a dividendyield of 0.4 percent this year, rising to 3.1 percent next year.
"Lloyds is a domestic story. If the property market is goingto do well, then the leverage you get out of Lloyds is great,plus they are going to pay a dividend this year, so the incomefunds will be buying them," said Zeg Choudhry, head of equitiestrading at Northland Capital.
Bolstering the British economic recovery story, car salesrose to their highest level since 2007 last year, data showed onTuesday, while British businesses reported strong growth andrising confidence.
Analysts at Bernstein Research highlighted Lloyds as beingthe mostly likely to directly benefit from a consumer recovery,while noting that RBS looks promising on valuation andthat HSBC is likely to increase its risk appetite inBritain.
RBS shares rose 1.8 percent, while HSBC - the biggestconstituent in the FTSE 100 - added 2.4 percent. Togetherfinancials contributed 23.4 points to the FTSE 100.
The index closed up 24.72 points, or 0.4 percent, at6,755.45 points, approaching its Dec. 30 high of 6,768.44 pointsin what technical analysts said was generally an upbeat picture.
CYCLICAL STOCKS
Also among the top gainers, IAG rose 3.4 percent ina late-session rally after posting a 3.6 percent surge inDecember traffic, helped by a strong performance at BritishAirways.
Other sectors exposed to the economic cycle such as consumercyclicals and energy also held up well as investors made freshbets for 2014.
"If you believe that there is some cyclical upturn - andthere does seem to be signs of that - then ... I think thedanger is that you remain too defensive. You've got to start tothink a bit more cyclical," said Paul Sedgwick, head ofinvestment at Frank Investments.
"I personally have been playing the cyclical recovery withindustrial names, or more cyclically exposed engineeringcompanies, chemical companies."
Some of the more defensive stocks in utilities and foodretailers lagged the broader market on Tuesday, hit by cautiouscomments from analysts.
Water company Severn Trent dropped 2.2 percent afterJP Morgan downgraded the stock to underweight, while supermarketchain Morrison fell 1.1 percent after Barclays saidthere was a risk it may step back from a pledge to deliverpositive like-for-like sales growth in the fourth quarter.
