FTSE kicks off 2017 on a record high, European stocks firm

* STOXX 600 up 0.7 percent

* FTSE 100 hits record high

* Banks, commodities-linked firms lead (Adds details and quote, updates prices)

By Kit Rees

LONDON, Jan 3 (Reuters) - Strength in financials andcommodity-related stocks continued to underpin European equitymarkets with Britain's FTSE 100 starting the new year ata record high on Tuesday.

The pan-European STOXX 600 index rose 0.7 percentin early deals, climbing to its highest level since December2015.

Britain's FTSE 100 rose 0.7 to hit a fresh recordhigh of 7,205.21.00 points. The UK blue-chip index had beenclosed in the previous session for a holiday.

"We've been particularly bullish on the FTSE whilst a lot ofpeople were going short," John Moore, trader at BerkeleyCapital, said.

"It's just good news all round - gold's up, we've had a bitof 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 1.2 percent and 0.8 percent respectively, buoyedby rising oil and metals prices.

Among individual stock movers, Italian banks were once againamong top risers, with newly merged Banco BPM gaining5.4 percent on its second day of trading, building on a strongrise in the previous session.

Italian banks slumped more than 38 percent in2016 on worries about their bad loans.

Fellow banking stocks Credit Suisse and Bank ofIreland were also among top STOXX gainers, with theEuropean banking index rising 1.3 percent.

InterContinental Hotels Group was another top riser,up 3.8 percent and boosted by an upgrade to "overweight" from"equal-weight" from Barclays, sending IHG's shares to a recordhigh.

Barclays analysts said that they expected IHG's results inFebruary to be a positive catalyst for the stock, and see abenefit from the firm's exposure to the U.S.

A downgrade, however, weighed on shares in British retailerNext, which fell 3.3 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 softening demand. (Editing by Vikram Subhedar and Dominic Evans)