LONDON (Reuters) - The FTSE 100 edged up to fresh 5-1/2 year highs on Monday, reversing early losses as strength in defensive stocks helped compensate for steep losses in the banking sector.
The FTSE 100 closed up 6.78 points, or 0.1 percent, at 6,631.76, extending its winning streak to eight days.
The index fell 0.3 percent early on, but appetite for high-yielding defensive stocks, which again outperformed, and good U.S. retail data helped reverse losses in afternoon trade.
U.S. retail sales unexpectedly rose in April, pointing to underlying strength in the economy.
"There was a high degree of pessimism over the figures, but given the revisions higher in jobs data, I always thought we could see a positive surprise... and that got people a little bit more bullish on equities again," said Michael Hewson, senior market analyst at CMC Markets, adding that the recent trend of buying on dips was continuing.
Defensive sectors such as consumer staples, utilities and health care stocks combined to add 12 points to the index, and have led the FTSE 100 (FTSE: ^FTSE - news) to a 12.4 percent gain year-to-date.
"You could look at the success of defensive sectors as a bearish signal, but with the poor yields in other assets, that's prompting renewed focus on these sectors," BGC Partners (NYSE: BGCA - news) market analyst Mike Ingram said.
"But you're not in an out-and-out bull market until you see a more broad-based rally."
The year's laggards continued to underperform, with financials alone taking 10 points off the index.
A rate-cut delivered by the European Central Bank on May 2, had helped the banks as well as the FTSE 100 index up from mid-April lows, and expectations of continued monetary easing are helping sustain shares at multi-year highs.
"The markets have factored in more than just an interest rate cut by the ECB, but additional proactive measures ... so we are waiting for more comments on this to push on from here," Alastair McCaig, analyst at IG Index, said.
"Bearing in mind the rally we've seen in the FTSE over the last two weeks, it's no surprise that we're taking a bit of a breather today."
(Editing by Catherine Evans)