* FTSE 100 up 0.1 pct, set for best week of 2014

* Motor insurers rally as pricing competition eases

* Shell (LSE: RDSB.L – news) profit knocks index to underperform peers

By Francesco Canepa

LONDON, Jan 17 (Reuters) – Britain’s top share index was on course for its best weekly gain this year as it inched higher on Friday, boosted by strong UK retail sales data and a rally in motor insurer stocks.

The outlook for corporate profits, however, was less upbeat, with heavyweight oil company Royal Dutch Shell (Xetra: R6C1.DE – news) warning on its future profitability.

Insurer Admiral Group rose 6.7 percent to the top of the FTSE 100 as data showed a multi-year decline in car insurance prices slowed in the last quarter of last year, potentially opening the door for some earnings upgrade for shares in the industry.

“The trend would be consistent with a stabilisation and, hopefully, an improvement in prices sometime in 2014,” said Ben Cohen, an analyst at Canaccord Genuity (Other OTC: CCORF – news) .

“We are in an environment where there hasn’t been a lot of upward earnings revision across the whole sector and investors are keen to buy into sub-sectors where you’ve got some signs of positive earnings momentum.”

Analysts have cut their profit estimates for insurers in Britain’s FTSE 350 index by 0.7 percent in the past three months, with non-life insurance companies such as eSure , Direct Line and RSA Insurance Group suffering some of the steepest downgrades.

The three stocks rose between 1 percent and 5.7 percent on Friday, with the broader FTSE 350 non-life insurance up 1.5 percent.

The blue-chip FTSE 100 index was up 7.12 points, or 0.1 percent, at 6,822.54 points at 1546 GMT.

Sentiment was also supported by data showing British retailers reported the fastest annual sales growth in more than nine years in December, with activity expanding at more than double the expected pace.

The FTSE is up 1.2 percent so far this week, its biggest rise since late last year, and it has risen nearly 12 percent in the past 12 months.

Andy Ash, head of sales at Monument Securities, said he was taking profit on the FTSE in light of weak corporate earnings, especially in the United States, at a time when the U.S. Federal Reserve starts to reduce its equity-friendly stimulus programme.

“We’ve been long this week and we’ll probably be taking profit now,” Ash said.

Royal Dutch Shell’s two listings knocked a combined 12 points off the FTSE after the oil major warned its fourth-quarter figures are expected to be significantly lower than recent levels of profitability because of oil and gas prices and problems with its refining business.

“When you’re talking about higher costs and lower production volumes, it’s a lethal combination,” Nick Xanders, who heads up European equity strategy at BTIG, said.

“It’s symptomatic of the entire market, with costs rising but revenues not coming through. Some hope that it’s a company specific thing, but I don’t think it is.”

Bookmaker William Hill was the top FTSE faller on concerns about tighter gambling rules in Britain after it said on Friday it would work with the government to tackle concerns about the use of high stakes gambling machines in its betting shops.

The stock fell 3.2 percent in volume three times its average for the past three months, compared with FTSE volume 15 percent above the index’s own average.