The FTSE paused on Thursday after recent sharp gains with a rally in miners on the prospects of a big sector merger counterbalanced by warnings from bluechips of a tough year ahead.

The FTSE-100 finished 0.1 percent, or 5.35 points, higher at 5,796.07 <.FTSE>, retreating from a six-month intra-day high of 5,809.82 after stumbling into resistance above the key 5,800 level.

News that mining group Xstrata and commodities trader Glencore are in merger talks to create a combined group worth more than 50 billion pounds ($79 billion) boosted sentiment for the sector and fanned speculation that other deals could follow.

It's good for sentiment. Obviously stocks are better, it may force other businesses to think again (about M&A), Arthur Gordon, co-head of UK sales at Canaccord Genuity investment bank, said.

I think the market is going higher, equities are very attractive relative to other asset classes. My favourites are E&P (exploration and production), the mining sector.

The global financial crisis had choked off the European mergers and acquisition market, but UBS expects it to start picking up this year thanks to the recent stocks rally, falling volatility and improving earnings momentum.

The FTSE volatility index <.VFTSE> fell for a third session in a row, pointing to improved investor risk appetite.

Shares in Xstrata jumped 10 percent to six-month highs, with trading volumes nearly three times their 90-day average. Glencore added 7 percent.

The broad mining sector was up 3 percent <.FTNMX1770>, also getting a boost from a bigger than expected fall in U.S. weekly jobless claims.

Coupled with news of a rise in global manufacturing activity on Wednesday, the data bodes well for future demand - including for metals - as the world economy slowly heals.

Consumers, however, remain in a cautious mood.

London-listed consumer goods group Unilever led the FTSE-100 loser board after it warned that 2012 will be a difficult year as problems in the developed world filter through to slower growth in emerging markets.

Shares in the soups and soaps maker fell 4.4 percent.

AstraZeneca also warned investors of harder times ahead as patents on key drugs are due to run out, sending shares in Britain's second-biggest drugmaker 3.4 percent lower .

The possibility of a messy default in Greece remained the biggest concern for investors, with euro zone finance ministers now aiming to agree a second bailout for Athens on Monday.

You do get the sense that there is money on the sidelines waiting for a resolution of the Greek situation and if there was a positive resolution, the FTSE could push higher in the near term, Bill McNamara, technical strategist at Charles Stanley, said.

If something like that happened, a run up to 5,935 is not impossible, that was a level from the summer last year.

(Reporting By Toni Vorobyova)