* STOXX 600 closes 0.7 percent higher
* Britain's FTSE 100 hits record high
* Banks, commodities-linked firms lead (Adds details and quote, updates prices)
By Kit Rees and Atul Prakash
LONDON, Jan 3 (Reuters) - Strength in financials andcommodity-related stocks continued to underpin European equitymarkets on Tuesday, with Britain's blue-chip index starting thenew year at a record high and other major indexes hitting freshpeaks.
The pan-European STOXX 600 closed 0.7 percenthigher after hitting its highest level since December 2015.Britain's FTSE 100, shut on Monday for a holiday, closed0.5 percent higher at 7,177.89 points, a record closing high,after a fresh all-time peak of 7,205.45 earlier in the day.
"We've been particularly bullish on the FTSE whilst a lot ofpeople were going short," said John Moore, trader at BerkeleyCapital. "It's just good news all round - gold's up, we've had abit of a bounce-back in oil as well ... propping up the Europeanmarket, so we've been buying into this in the last week or so.We expect the trend to continue."
Europe's basic resources sector and oil & gas were up 1.3 percent and 0.9 percent respectively, buoyedby stronger commodity prices.
Financials were stand-out winners, with the STOXX Europe 600Banks index finishing 2.8 percent higher after hittinga one-year high.
Banks were in demand as concerns of a tighter regulatoryenvironment were pushed back. Global banking regulatorspostponed the approval of long-awaited rules designed to avert arepeat of the financial crisis after failing to agree on theminimum amount of capital banks must hold.
Italian banks were once again among top risers, with newlymerged Banco BPM gaining 7.2 percent on its second dayof trading, building on a strong rise in the previous session.
The Italian banking index, which slumped morethan 38 percent in 2016 on worries about bad loans, closed 2.1percent higher after hitting its highest level since May 2016.
Fellow banks Credit Suisse and Bank of Ireland were also among top STOXX gainers, with their sharesrising 6.4 percent and 6.8 percent respectively.
Among other sharp movers, Euronext surged nearly 7percent after London Stock Exchange Group agreed to sellits French clearing business to Euronext for 510 million euros($534 million) in its bid to win regulatory approval for amerger with Deutsche Boerse.
InterContinental Hotels Group hit a record high thenclosed up 1.3 percent, boosted by an upgrade to "overweight"from "equal-weight" from Barclays.
Barclays analysts said that they expected IHG's results inFebruary to be a positive catalyst for the stock, and saw abenefit from the firm's exposure to the United States.
However, a downgrade weighed on British retailer Next, which fell 4.3 percent.
Deutsche Bank cut its rating on the stock to "hold" from"buy", citing a more challenging year for European generalretailers in 2017, especially in the UK, where they expectinflation to lead to a softening in demand. (Additional reporting by Atul Prakash; Editing by VikramSubhedar and Dominic Evans)