Taylor Wimpey Share News (TW.)

* FTSE 100 up 0.3 pct

* Banks lead gainers as inflation slows down

* Housebuilders gain after Bellway update

* Fenner jumps 24 pct on $1.7 bln Michelin bid(Updates prices, adds details)

By Tom Pfeiffer

LONDON, March 20 (Reuters) - Britain's FTSE 100 index gainedon Tuesday, with banks leading the way after data showed a smallslowdown in inflation, while Fenner shares surged after atakeover offer from tyre maker Michelin.

In the second approach for a UK mid-cap firm in as manydays, Fenner jumped 24 percent to the top of the FTSE250 after France's Michelin made a 1.2 billion-pound($1.7 billion) bid for the engineering 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.

On the large-cap index, housebuilders rose after Bellwaysaid a strong order book would help it achieve record annualoutput and reported an increase in average selling prices.

The FTSE 100 was up 0.3 percent at the close, with housebuilders Taylor Wimpey, Berkeley Group andPersimmon among the biggest gainers. Bellwayjumped 3.5 percent.

Banks contributed most to keeping the index in positiveterritory. Lloyds was up 1.1 percent and HSBCgained 0.7 percent.

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.

Economists expect the central bank to raise interest ratesas early as May.

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.

Sophos tumbled 9.2 percent to the bottom of theFTSE 250 as traders flagged concern over leverage after theblow-up at Micro Focus, and as tech companies came underincreased scrutiny globally.

Northern Trust turned negative on the company on Monday forthe first time since its IPO in June 2015.

Some market watchers said UK stocks may now be a goodlonger-term bet after the government sealed a Brexit transitiondeal with its EU partners.

The transition agreement "will remove a little bit of thateconomic uncertainty," said Edmund Shing, head of equityderivative strategy 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."

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 and MarkPotter)