Whitbread break-up talk stirs interest in Costa Coffee owner

* Sales under pressure from tough UK market

* Activist seen pushing for break-up of business

* Brands include Costa Coffee and Premier Inn (Adds details, recasts)

Jan 18 (Reuters) - The prospect of a break-up of Whitbread boosted its shares on Thursday despite a drop in sales for its Costa Coffee business in a tough British retail market.

Reuters reported late on Wednesday that investor Sachem Head was pushing the FTSE 100 company to consider splitting the Costa Coffee (NYBOT: KC-ZK15-c.NYB - news) chain from its hotels and restaurant businesses, according to two people familiar with the matter.

There was no immediate comment from Whitbread (Frankfurt: WHF4.F - news) whose other brands include the Premier Inn budget hotel chain. U.S. hedge fund Sachem Head disclosed a 3.4 percent stake in Whitbread last month.

Whitbread shares traded 3.3 percent higher at 0905 GMT.

In a trading statement, Whitbread blamed a tough British high street environment for the slip in Costa Coffee sales, while like-for-like sales across the group rose only marginally in the third quarter.

Costa's comparable UK sales declined 0.1 percent in the 13 weeks ended Nov. 30, the latest sign of pressure on the UK high street after a string of weak trading updates from retailers.

"We do expect the tough UK high street environment and inflation in our sector to continue to pose challenges in the year ahead," Whitbread Chief Executive Allison Brittain said in a statement.

The likes of supermarket Tesco (Frankfurt: 852647 - news) and department store Debenhams (Frankfurt: D2T.F - news) have reported weak festive trading in recent weeks, as consumers, facing stagnant wage growth and rising inflation, cut back on spending.

Whitbread said it was trying newer blends of coffee and food options in response.

Comparable sales growth in the UK at Premier Inn, which has over 65,000 rooms in the country, increased 0.5 percent in the third quarter. Across the group as a whole, there was a 0.3 percent rise in UK comparable sales.

Whitbread said there were signs of weakness in the hotel market, most notably in London, with both occupancy and average room rates declining year-on-year.

Like-for-like sales fell 5.6 percent for the third quarter for its London hotels, with comparable RevPAR -- a key industry metric -- down 5.8 percent.

Premier Inn -- which has a lot of exposure to the London market -- has had to cope with a slowdown in the capital, blamed in part on a series of attacks by militants last year.

The business also faces competition from online holiday rental startups such as Airbnb. (Reporting by Rahul B in Bengaluru; Editing by Bernard Orr, Alistair Smout and Keith Weir)