* FTSE 100 edges up by 0.5 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 was the top gainer, rising 3.4 percent, asinvestors bought the stock on expectations that the bank willstart paying dividends this year and that it will benefit from arecovering British economy 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 the toppure play on UK consumers, while noting that RBS lookspromising on valuation and that HSBC is likely toincrease its risk appetite in Britain.
RBS shares rose 1.9 percent, while HSBC - the biggestconstituent in the FTSE 100 - added 2.0 percent.
The gains helped boost the overall index, which was up 30.58points, or 0.5 percent, at 6,761.31 points by 1517 GMT,closing in on its Dec. 30 high of 6,768.44 points in whattechnical analysts said was generally an upbeat picture.
CYCLICAL STOCKS
Alongside financials, other sectors exposed to the economiccycle such as consumer cyclicals and energy held up well asinvestors made fresh bets 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 1.2 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.
Lloyds (LLOY)