UPDATE 2-Energy stocks, homebuilders boost FTSE 100; DH Smith slumps

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* Melrose jumps on plans to return cash to shareholders

* Energy shares track oil prices higher

* DS Smith drops on a 38% slump in annual pre-tax profit

* FTSE 100 up 0.5%, FTSE 250 adds 1%
(Updates to market close)

By Shashank Nayar

June 22 (Reuters) - British shares ended higher on Tuesday
led by gains in heavyweight energy and homebuilder stocks, while
investors hoped that the central bank will keep interest rates
at record lows despite a recent rise in inflation.

The benchmark FTSE 100 index climbed 0.5%, with
British Land and Land Securities being the top
gainers, up between 3% and 4.7% after J.P. Morgan raised its
price target on both the stocks on expectations of higher
footfalls once the economy reopens.
Britain's biggest seller of building materials Travis Perkins
gained 6.7% after it raised its full year earnings
outlook.

The domestically focussed mid-cap index rose 0.9%.

Britain's central bank is set to meet later this week to
discuss its massive bond-buying program after inflation surged
past its 2% target in May.

"Investors are slowly getting used to the idea that all of
this talk about the prospect of rate rises and tapering is
merely finessing a timeline... when it comes to withdrawing
stimulus and potentially raising rates," said Michael Hewson,
chief market analyst at CMC Markets UK.

The FTSE 100 had surpassed the 7,000 mark in April on
attractive valuations, easing COVID-19 lockdowns and a steady
economic rebound, but the pace of gains has since slowed due to
inflation concerns.

The energy index gained 2.14% with Royal
Dutch Shell and BP being the top boost to the
FTSE 100 index.

Among stocks, Melrose gained 2.5% on its plans to
return about 730 million pounds ($1.01 billion) in cash to its
shareholders.

Cardboard maker DS Smith fell 1.7%, the second
biggest loser on the FTSE 100 index after reporting a 38% slump
in annual pre-tax profit.

Britain's Senior Plc dropped 9.9% after it rejected
a $1.2 billion buyout offer from Lone Star Global, saying the
sweetened proposal undervalued the aircraft and car parts
supplier.
(Reporting by Shashank Nayar in Bengaluru; editing by
Uttaresh.V and Jonathan Oatis)