UK's FTSE climbs to record high after report HSBC considering spin-off

* FTSE 100 edges 0.6 pct higher

* HSBC rises on report may spin off UK retail banking

* Housebuilders hit by Labour's rent control plans -traders (Adds detail, fresh prices)

By Alistair Smout and Sudip Kar-Gupta

LONDON, April 27 (Reuters) - Britain's top equity index rose to a record high on Monday, led by HSBC, after a report that Europe's biggest bank might spin off its UK retail operations.

HSBC rose 3.6 percent after the Sunday Times reported that it was weighing plans to spin off its British retail bank in a 20 billion-pound ($30 billion) deal. HSBC declined to comment on the report.

The bank had already said it was reviewing whether to keep its headquarters in London, given increased regulation and the possibility of a referendum on Britain's membership in the European Union.

"HSBC investors are warming to reports that the UK-domiciled and London-listed bank is mulling a spin-off of its UK retail banking operations to ensure it remains flexible to any changes to the UK's membership in the EU," Will Hedden, a dealer at London Capital Group, said in a note.

Rival bank Standard Chartered (Other OTC: SCBFF - news) also rose 3.6 percent.

The rise in HSBC added 17 points to the FTSE 100, which was up 43.41 points, or 0.6 percent, at 7,114.11 points by 1406 GMT. The index rose to a record 7,122.74 points, surpassing a previous high set earlier in the month.

Underperforming the market were housebuilders such as Taylor Wimpey and Barratt Development, amid political concerns before next week's election.

The Labour Party said on Sunday it would introduce rent controls if it won the election and ban private landlords from raising rents by more than the rate of inflation for the duration of new three-year contracts.

Traders said the proposals could weigh on the housing market, which in turn was contributing to the drop in housebuilder stocks, even though the party also said it would scrap stamp duty for first-time buyers.

"Nervousness over the election is finally starting to filter into the FTSE 100. Rent controls will affect the housing sector," said Atif Latif, director of trading at Guardian Stockbrokers.

Traders also cited uncertainty stemming from the Conservatives' promise to hold a referendum on Britain's membership of the European Union by the end of 2017 if they win.

The FTSE underperformed European shares, which were buoyed by hopes that a reshuffled negotiating team would help Greece reach a deal with its international lenders.

"We've been bouncing around 7,000-7,100 for two weeks now, but a strong finish today above 7,100, helped by the euro zone, would leave us well set for a break-out," Chris Beauchamp, market analyst at IG (LSE: IGG.L - news) , said.

"The market outlook remains clearer in the euro zone than in Britain, however." (Editing by Larry King)