FTSE 100 seen at 6,100 by year-end

The median forecast given by 19 equity strategists in the survey conducted over the past week predicted the FTSE 100 would end the year at 6,100, having risen 4% so far this year to 5,808.99 by the close of trade on Wednesday.

The last poll in December had predicted the FTSE would end 2012 at 5,600 points but investor sentiment has since improved as politicians get to grips with the euro zone crisis and evidence emerged of a pick-up in economic activity in the United States, the world's largest economy and a key source of earnings for many FTSE 100 companies.

But strategists warned recent gains may prove difficult to hold onto in the short term and the FTSE is expected to fall as low as 5,695 by mid-2012, according to 12 of the analysts polled, as the effects fade from the European Central Bank's latest injection of cash into the banks through its Long Term Refinancing Operation (LTRO).

This is expected to leave equity markets exposed to profit taking, triggered by catalysts such as a possible deterioration in U.S. economic indicators, a cloudier outlook for the Chinese economy and the resurfacing of Europe's unresolved debt problems.

"The boost from the LTRO liquidity has started to wane more recently," said Robert Quinn, chief European equity strategist at Standard & Poor's Capital IQ.

"But as long as government bond auctions are well bid in both Italy, where domestic banks' purchases have risen 10% over the past three months, and Spain (up 29% over the same period) then I believe that the Stoxx 600 (pan-European index) will close the year around 280 and the FTSE 100 at 6,100."

Spain appeared poised to be the next hot spot in the European debt crisis, after the country ripped up a budget deficit target agreed with Brussels, sending Madrid's borrowing costs up markedly and sparking fears of contagion to Italy.

U.S. DRIVE

Economic data and corporate earnings reports from the United States are also expected to continue to be a powerful driver for share prices over the coming months despite a more uncertain picture on this side of the Atlantic.

Earnings momentum among UK-listed companies remained negative, with a 0.6% cut to mean analyst estimates in the last 30 days, compared to a 0.2% upgrade for the U.S. S&P 500 index, Thomson Reuters Startmine data showed.

Analysts expect average earnings growth of 2% for UK blue chip companies this year, compared with an expected 8.5% for companies in the S&P 500, according to Thomson Reuters Datastream.

There was still scope for market falls in the short term if the economic momentum on either side of the Atlantic faltered, but the setback should prove temporary, analysts said.

"Most recent dataflow has been disappointing, mainly in China and Eurozone," JP Morgan strategist, Emmanuel Cau, said.

In the longer term however, JP Morgan remained sanguine about the market's prospect, with a 6,350 year-end target for the FTSE 100.

CHINA LANDING

Meanwhile China, until recently regarded as an engine of economic and earnings growth, has became a source of concern for investors after it cut its growth goal for this year.

An abrupt fall in the growth rate of the world's second largest economy – a scenario economists describe as a 'hard landing' – could affect in particular the earnings of companies dealing in basic resources, since China is the world's largest buyer.

But strategists were reluctant to factor in a hard landing for the Chinese economy given that Beijing could provide stimulus through policy measures if needed.

In addition the Chinese authorities' renewed emphasis on boosting consumer demand could prove beneficial for retailers with a presence in the country, such as Burberry.