HSBC Holdings Share News (HSBA)

(For a live blog on European stocks, type LIVE/ in an Eikonnews window)

* FTSE 100 up 0.2 pct

* Banks lead gainers as inflation slows down

* Housebuilders gain after Bellway update

* Fenner jumps 24 pct on $1.7 bln Michelin bid

By Tom Pfeiffer

LONDON, March 20 (Reuters) - Britain's FTSE index wasEurope's best performer on Tuesday, with banks leading the gainsafter data showed a small slowdown in inflation that wasunlikely to deter the Bank of England from raising rates thisyear.

House builders rose after Bellway said a strong order bookwould help it achieve record annual output and reported anincrease in average selling prices.

The FTSE 100 was up 0.2 percent at 0957 GMT, with housebuilders Taylor Wimpey, Berkeley Group andPersimmon among the biggest gainers. Bellwayjumped 2.9 percent.

Banks contributed most to keeping the index in positiveterritory, outperforming all other big European stock markets.Lloyds was up 0.9 percent and HSBC 0.7percent.

Software company Micro Focus, which lost 46 percentof its market value in the previous session after its chiefexecutive quit and it cut its revenue outlook, staged a smallrecovery, gaining 3.6 percent.

M&A action continued with Fenner jumping 24 percentto the top of the FTSE 250 after French tyre maker Michelinmade a 1.2 billion-pound ($1.7 billion) bid for theengineering company.

"Our first take is that the deal looks good and offers ahealthy premium especially in light of Fenner's very strongrecent share price performance," said Stifel analysts.

Shares in Ocado fell 1.3 percent after the Britishon-line supermarket reported a hit to trading from recent snowstorms.

Britain's hopes of avoiding a disorderly exit from the EUnext year got a boost on Monday when the government sealed aBrexit transition deal with its EU partners.

The FTSE fell to a 15-month low later in the day as theBrexit deal boosted sterling, weighing on the share prices ofinternationally exposed companies. But some market watchers saidUK stocks may now be a good longer-term bet.

The transition agreement "will remove a little bit of thateconomic uncertainty," Edmund Shing, head of equity derivativestrategy at BNP Paribas.

"And by the way, let's not forget that even if the UKdoesn't have fantastic GDP growth forecasts, they are inching uprather than down, so actually maybe there is less reason formassive pessimism around UK large-cap stocks."

British inflation was weaker than expected in February,according to official figures that appeared unlikely to alterthe view of the Bank of England, which meets this week, thatwages will grow more quickly than prices this year. Economistsexpect the central bank to raise interest rates as early as May.

Some investors may be wary of placing big bets before theU.S. Fed's two-day policy meeting this week, with the centralbank expected to raise rates for the first time this year.

Mike Bell, global market strategist at JPMorgan AssetManagement, sees a chance of four Fed rate rises this year.

"I think equities can handle it as long as they don't startto signal that they are concerned about inflation and signalmore than four rate hikes this year," Bell added.

(Reporting by Helen Reid, editing by Larry King)