* FTSE ends up 0.2 pct at 6,730.67 points

* Next (Other OTC: NXGPF – news) hits record highs after strong Xmas sales

* Next rises 10 pct, M&S up 3.9 percent

* FTSE to hit 7,000 in Q2 – SVM’s McLean

By Sudip Kar-Gupta

LONDON, Jan 3 (Reuters) – Strong gains by clothing retailer Next lifted Britain’s top equity index on Friday, with many traders expecting the market to push on to record highs this year.

The blue-chip FTSE 100 index closed up 0.2 percent, or 12.76 points, at 6,730.67 points.

Next’s shares hit record highs after the company raised its annual profit outlook following strong Christmas sales. The shares closed up 10 percent at 6,085 pence, having earlier risen as much as 11 percent to a lifetime high of 6,130 pence, to add the most points to the FTSE 100.

Next’s performance helped to lift rival retailer Marks & Spencer, whose shares rose 3.9 percent, and eased fears the sector may have had weaker-than-expected Christmas sales after a profit warning this week from Debenhams (Other OTC: DBHSY – news) .

“We’re looking a bit better on the retail front. There were a few scares after Debenhams but Next seems to have put things right,” said Berkeley Futures associate director Richard Griffiths.

The FTSE 100 rose 14.4 percent in 2013, its best annual gain since 2009, and a Reuters poll last month forecast it would hit 7,100 by end-2014.

Many traders and investors expect low interest rates and a gradual UK economic recovery to support shares this year.

Griffiths said the FTSE could rise 8 percent by June, which would push it up to around 7,280 points, while SVM Asset Management managing director Colin McLean also expected the FTSE to hit a record 7,000 by the second quarter of this year.

Investors have acknowledged that a sudden spike in bond yields or a slump in emerging markets economies could derail the equity rally, although many remain upbeat.

McLean said that, while the stock market rally could be halted by a slowdown in emerging economies, “any pullback on the market will be brief and shallow. There’s still quite a weight of money coming into the stock market.”