British fashion retailer New Look has moved closer to a stock market return by picking banks to handle a possible initial public offering (IPO) early next year, an industry source said on Wednesday.

The budget-focused chain, owned mainly by private equity firms Permira PERM.UL and Apax APAX.UL, has chosen to work with JP Morgan Cazenove, Deutsche Bank and Credit Suisse, the source told Reuters.

It will decide after Christmas whether to pursue a flotation that some newspapers have said could value the fast-growing business at about 1.7 billion pounds ($2.8 billion).

They're focusing on Christmas at the moment. An IPO is an option, but it's one of several options, the source said.

New Look declined to comment.

The group is one of a number of retailers looking at a possible IPO next year amid rising equity markets and signs of a consumer recovery.

Other flotation candidates include online grocer Ocado, pet food specialist Pets at Home and fashion retailer Supergroup.

IPOs have been picking up across Europe, and have generally been well received by investors.

French retail and luxury group PPR raised 806 million euros ($1.2 billion) on Wednesday after its Africa-focused unit CFAO attracted solid demand in a share sale, sources familiar with the matter said.

Italian online fashion retailer Yoox priced its IPO toward the upper end of an indicated range on Tuesday.

SECOND TIME LUCKY?

New Look was bought by Apax, Permira and founder Tom Singh in 2004. The private equity firms abandoned an attempt to sell it in 2007 after failing to achieve a high enough price.

Another source familiar with the matter said any flotation was likely to take place in the first quarter of next year and would involve all, rather than just a part, of the company.

Founded in 1969, New Look has been one of the best performing British clothing retailers in the economic downturn and says it is the country's biggest seller of women's footwear, dresses and denim.

The group, which has over 600 shops in Britain as well as stores in France, Belgium and franchise businesses in the Middle East and Russia, outlined plans earlier this year to almost double its selling space in Britain over the longer term, as well as step up expansion abroad and online.

(Editing by Victoria Bryan and Sharon Lindores)