FTSE 100 inches higher, posing valuation conundrum for traders

* FTSE 100 up 3.71 points at 6,716.89

* Br. Land boosted by bid spec, UBS upgrade

* G4S (LSE: GFS.L - news) lifted by breakup talk as CEO departs

* BSkyB (LSE: BSY.L - news) fall as Macquarie cuts rating on earnings worries

By David Brett

LONDON, Oct (KOSDAQ: 039200.KQ - news) 25 (Reuters) - London's blue chip index ground higher on Friday, posing traders with the conundrum of whether to buy into a market near multi-year highs on premium valuations or take profits on a sluggish recovery in earnings.

By 1020 GMT, the FTSE 100 was up 3.71 points at 6,716.89, just 1.8 percent off 13-year highs hit back in May. The index slumped in June but has since climbed almost all the way back as concern over an imminent withdrawal of monetary stimulus, a big driver for equities, has faded.

But valuations are now above their 10-year average. On a 12-month forward price-to-earnings ratio, valuations have risen 16 percent since mid-June to 12.6 times, according to Thomson Reuters Datastream.

Although not overly stretched, earnings, which are still in downgrade territory, remain a concern according to Hartmann Capital (OTC BB: CGHC - news) trader Basil Petrides.

"Although the markets are grinding slowly higher, we are due a correction if the Christmas rally happens," Petrides said.

Fifty-seven percent of European companies have so far beaten or met earnings expectations for the current quarter, roughly in line with the previous three quarters, but down from 63 percent earlier this week, Starmine data showed.

Technical analysts said that while the index might encounter some near-term consolidation, charts showed scope for continued gains over the coming weeks.

Valerie Gastaldy, head of technical analysis firm Day By Day, noted that the FTSE 100 is slowly breaking out of a consolidation pattern that has August and September peaks as its upper levels.

"It should quietly move back to its all-time high (6,950.60) by the end of November or so," she said

With the market only marginally higher, the drivers among sectors were mixed, although M&A was a theme among top gainers.

British Land (LSE: BLND.L - news) added 1 percent with traders noting speculation that the real estate investment trust (REIT) could be a 900 pence-per-share takeover target from a sovereign wealth fund.

An upgrade from UBS helped too after the Swiss bank raises its rating on the stock to "buy" from "neutral", lifting its target price to 680 pence from 630 pence.

G4S climbed 2.6 percent with traders citing HSBC (LSE: HSBA.L - news) 's note, in which the investment bank upgrades the security services firm to "neutral" from "underweight" and talks up the break-up value of the group, as the catalyst.

The world's biggest security services firm, said its UK chief executive Richard Morris had resigned at a time when the group is trying to recover from a series of damaging setbacks.

BSkyB was the top FTSE 100 faller, down 2.2 percent with traders citing a note from Macquarie, in which the broker cuts its rating to "neutral" from "outperform" on concerns that a coming auction for rights to show Champions League football could hit earnings.

"With limited upside from current share price levels, potential for negative sentiment coming from another aggressive rights auction, and risk in the coming quarters that BT (LSE: BT-A.L - news) begins to impact BSY's broadband growth as marketing levels are sustained, we see 5 percent downside," Macquarie said. (Editing by Hugh Lawson)