Kingfisher, HSBC halt FTSE rise as investors cash in on rally

* FTSE 100 (FTSE: ^FTSE - news) flat at 6,582.86

* Index pauses after failure to break 6,600 resistance

* City Index sees FTSE rising to 6,700

By Francesco Canepa

LONDON, Sept 11 (Reuters) - Britain's top share index was flat on Wednesday, pausing after a recent rally, as profit takers hit DIY-retailer Kingfisher (LSE: KGF.L - news) in response to a cautious update and a JP Morgan (Other OTC: JPYYL - news) downgrade dragged on emerging-market-focused bank HSBC (LSE: HSBA.L - news) .

The FTSE was down 1.13 points, unchanged in percentage terms, at 6,582.86 points by 1051 GMT. Technical traders were cashing in on a 3 percent rise on the FTSE over the last 10 sessions after the index failed to break a technical resistance at 6,600, a level that has capped it since mid-August.

"There is a little bit of profit taking," said Giles Watts, head of equities at City Index.

Watts cited the prospect of a likely reduction in U.S. monetary stimulus - which has helped the FTSE rise 17 percent in the past year - as the main factor sapping investor appetite. But he remained confident the index would continue to rise into the year-end as the global economy improved.

"We are going to see a little bit of volatility but there is still a feeling that this is going to grind its way up to 6,700," he said.

Emerging-market focused bank HSBC knocked 5 points off the FTSE after JP Morgan downgraded its recommendation on the stock to "hold" from "buy", preferring domestic British banks in light of improving economic conditions in the country.

"With an improving economic outlook for the UK ... and substantial progress on capital made by domestic UK banks in 2013, we believe that the relative attractions of the domestic UK banks sector have improved compared to HSBC and StanChart , which face headwinds within some EM economies," the bank's analysts said in a note.

The more positive macro backdrop in Britain was underpinned on Wednesday by data showing the unemployment rate in July dropped to its lowest since late last year.

On the downside, however, Kingfisher fell 2.2 percent after the firm said consumer confidence remained weak in its major markets, France and Britain, spurring profit taking in the shares which have risen 44 percent in the past six months.

The stock trades at 16.3 times its expected earnings for the next 12 months, its highest multiple since 2009, Thomson Reuters data shows.

Volume on Kingfisher was close to its full-day average for the past three months, compared to just over a third of the broader FTSE 100 index.

Five FTSE 100 stocks, including insurer Admiral Group (LSE: ADM.L - news)

, started trading without their dividend entitlements on Wednesday, knocking up to 1.4 points off the FTSE 100. (Reporting By Francesco Canepa. Editing by Jane Merriman)