* FTSE up 0.6 percent, 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 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 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 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.
The FTSE 100 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.
A shock fall in British industrial output in February raised doubts of a rate hike in the UK.
"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, 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 rose 3.7 percent.
Tesco 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 peer Thomas Cook climbed 3.2 percent as its rating was raised to "buy" from "hold".
Miners and energy stocks were the main supports for the FTSE 100, rising with commodity prices as Brent crude 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 added 1.3 percent as it took a step closer to its purchase of Cairn's Indian assets.
Ex-dividend factors knocked 0.96 point off the FTSE 100 on Wednesday, with Pearson and Wolseley trading without their payout attractions.
UK housebuilders Taylor Wimpey, Barratt Development and Redrow 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)