Britain's blue-chip share index rises as ARM beats profit forecast

* FTSE 100 closes up 1 pct at 6,795.34 points

* ARM surges after posting higher profits

* Tesco (Xetra: 852647 - news) hit by brokers' price target cuts

* Cautious parcel unit outlook hits Royal Mail (LSE: RMG.L - news)

By Sudip Kar-Gupta

LONDON, July 22 (Reuters) - Britain's top share index rallied on Tuesday, lifted by technology group ARM, which posted higher profits and beat analysts' expectations.

Global equity markets were also boosted after pro-Russian rebels complied with calls from Western governments and handed over the black boxes of the Malaysia Airlines plane downed over eastern Ukraine last week.

The blue-chip FTSE 100 equity index closed up by 1 percent, or 66.90 points, at 6,795.34 points.

Nevertheless, it remains 1.2 percent below its July high.

The FTSE has come under pressure as tensions between Russia and the West have mounted over Ukraine, prompting fears of an escalation of sanctions on Russia, which Western powers accuse of backing the anti-Kiev rebels.

However, Intertrader chief market strategist Steve Ruffley backed buying equities on days when the market dips, since the FTSE has proven resilient in terms of bouncing back from lows.

"I can see the FTSE easily reaching record highs of 7,000 points," said Ruffley, adding that the FTSE would get support from Britain's strengthening economy and better corporate earnings.

ARM RISES

ARM jumped 5.7 percent, making it the best-performing FTSE stock in percentage terms, after the company - which sells blueprints for chip designs - posted higher second quarter profits.

"ARM is the UK's pre-eminent play on the digital economy," said Mirabaud Securities equity research partner Steve Clayton.

However, Tesco fell 3.9 percent as Deutsche Bank (Berlin: DBK.BE - news) and Exane BNP Paribas (Xetra: 887771 - news) both cut their price targets on the stock, a day after the supermarket retailer announced a profit warning and a change in chief executive.

Tesco's shares had risen 1.3 percent on Monday as investors reacted positively to the fact that CEO Philip Clarke would be leaving after months of company underperformance.

However, a degree of caution set in on Tuesday as analysts said new CEO Dave Lewis, from Unilever (NYSE: UL - news) , had a tough task ahead of him in restoring the fortunes of Tesco, which has been hit by competition from low-cost rivals.

Royal Mail also underperformed, falling 3.4 percent after the postal company, which floated on the stock market in October, said rising competition had led it to cut expectations for revenues from its parcel deliveries business.

"The key challenge remains weakness in parcel pricing in the UK. In our view, the company faces a considerable volume and pricing challenge in parcels in the next 18 months," said Cantor Fitzgerald analyst Robin Byde. (Additional reporting by Neil Maidment and Alistair Smout; Editing by Jeremy Gaunt)