Britain's FTSE hits record high on first trading day of 2017

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* FTSE 100 hits new high of 7,205.21

* Index comes off highs, up 0.3 percent

* Strong PMIs send sterling up

* IHG, Next (Frankfurt: 779551 - news) go opposite directions after broker changes

By Alistair Smout

LONDON, Jan 3 (Reuters) - Britain's top share index rose to a record high on Tuesday, extending an end-of-year rally into 2017, led by InterContinental Hotels (Frankfurt: IC1F.F - news) .

Britain's FTSE 100 was up 22.50 points, or 0.3 percent, at 7,165.33 by 1012 GMT, as the London Stock Exchange (Other OTC: LDNXF - news) re-opened after a long weekend.

It set a high of 7,205.21 in early deals, rising above the peak it reached at the end of 2016, built on a 5.3 percent rally in December, its strongest monthly performance since July 2013.

It ended 2016 up 14.4 percent for the year, outperforming major European bourses.

Weakness in sterling after Britain voted to leave the European Union has helped to support British stocks, especially those with international exposure in dollars. Mining stocks rose by more than 100 percent in 2016, while banks posted an impressive recovery in the second half of the year.

Growth-sensitive stocks such as banks and miners gained again on Tuesday, with some attributing optimism in early deals to strong PMI data out of China.

"The China data is key, and we've seen a sustained period of good numbers, so that is quite a big deal," said James Hughes, chief market analyst at GKFX, who added that the recent rally could nevertheless be overdone.

"We've had a very strong movement in the FTSE 100... but when you rally this strongly, I worry that when it turns around, the downward move could be quite aggressive."

Top riser was InterContinental Hotels, up 3.1 percent after an upgrade to "overweight" from "equal-weight" from Barclays (LSE: BARC.L - news) , lifting the stock to an all-time high.

Barclays is a top-rated broker on the stock, and said that IHG was the best play in the leisure sector on a possible rebound in U.S. growth.

The index fell back from highs as sterling rose following data that showed UK manufacturing growth unexpectedly hit a 2-1/2-year high.

Top faller was retailer Next, which suffered from a downgrade by Deutsche Bank (IOB: 0H7D.IL - news) to "hold" from "buy".

Next fell more than 30 percent in 2016, but the analysts said that even with this fall, the stock did not look especially cheap.

"The sector has already de-rated, mainly on the changed demand and currency outlook due to Brexit, and valuations are typically at historical average levels - cheap but in some cases not cheap enough," analysts at Deutsche Bank said in a note.

"Reflecting our caution on apparel and impact of channel shift we downgrade Next to Hold." (Reporting by Alistair Smout; Editing by Andrew Heavens)