Britain's FTSE recovers ground after hitting lowest level in nearly 5 months

* FTSE 100 hits lowest intraday level since late August

* Merlin, TUI (LSE: TUI.L - news) and IHG hit by JP Morgan downgrades

* Tesco (Xetra: 852647 - news) rises after strong sales figures

* FTSE nearly 20 pct below last year's record high (Adds detail)

By Sudip Kar-Gupta and Alistair Smout

LONDON, Jan 14 (Reuters) - Britain's top share index fell to its lowest level in almost five months on Thursday, hit by falls in downgraded travel and leisure stocks, though an oil price recovery and strength on Wall Street helped it end off its lows.

The blue-chip FTSE 100 index was down 42.74 points, or 0.7 percent at 5,918.23 by the close, having hit its lowest intraday level since late August 2015 in early trade.

The FTSE 100 is down by about 6 percent since the start of this year and down nearly 20 percent from last April (LSE: 0N69.L - news) 's record high of 7,122.74 points.

"This market is in contraction and I expect this contraction to continue for the next six months," Beaufort Securities' sales trader Basil Petrides said.

InterTrader's chief strategist Steve Ruffley was also cautious, saying the FTSE could fall to 5,500 points this quarter.

Travel and leisure companies were the top fallers, with Merlin Entertainments (LSE: MERL.L - news) , TUI and Intercontinental Hotel Group down 4.9-7.2 percent.

JP Morgan downgraded Merlin to "underperform" and TUI to "neutral", while cutting its target price on Intercontinental, saying that valuations were high against peers.

However, the market did recover in afternoon trade. Oil and gas shares rose after early weakness to add 23 points to the index, with Brent steadying after hitting 12 year lows earlier in the session.

A rally in U.S (Other OTC: UBGXF - news) . crude helped Wall Street higher, and saw European indexes cut losses into the close.

Materials stocks also added 7.6 points to the index as the battered mining sector rose from its lowest levels since 2004. Volatile shares Anglo American (LSE: AAL.L - news) and Glencore (Amsterdam: GX8.AS - news) rose 13.6 percent and 9.4 percent respectively.

Shares (Berlin: DI6.BE - news) in Tesco rose by 6.1 percent after Britain's biggest supermarket chain posted better than expected sales over the key Christmas period.

Tesco's solid numbers followed similarly robust results from peers Sainsbury (Amsterdam: SJ6.AS - news) and Morrisons, as established grocers battle increased competition from discounters such as Aldi and Lidl.

"While the results are encouraging, the road ahead remains difficult," said Himanshu Pal, retail insights director for Kantar Retail. "The UK grocery environment will continue to be tough in the near future but it's heartening to see the top-four grocers fighting back against the discounters." (Editing by Tom Heneghan)