FTSE edges up as oils gain but inflation unnerves

By Rebekah Curtis

LONDON, May 21 (Reuters) - Britain's FTSE 100 .FTSE index eked out modest gains on Wednesday, dominated by record oil prices that set energy shares afire but cast the shadow of inflation over the wider market.

The FTSE 100 closed up 6.5 points, or 0.1 percent, at 6,198.1 after a volatile trading session as stocks fell elsewhere in Europe and in the United States. The UK benchmark index shed 2.9 percent in the previous session, its biggest one-day fall in two months, and is down 4 percent year-to-date.

Oil shares stormed ahead to account for 57 positive index points after data showing a larger-than-expected drop in crude inventories in the latest week sent oil prices CLc1 soaring above $132 a barrel.

"There are inflationary concerns abounding," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

"I'm quite sure that we've got to go through another period of shakeout before we can feel more confident about the longer-term picture."

BP (BP.L: Quote, Profile, Research, Stock Buzz) advanced 3.5 percent, Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) added 4.7 percent, BG Group (BG.L: Quote, Profile, Research, Stock Buzz) climbed 5.5 percent and Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) tacked on 4.6 percent.

Banks languished in the red, however, hurt by inflationary concerns and further depressed by market talk that Swiss bank UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) may have to increase the size of its planned rights issue. UBS was not immediately available for comment. [ID:nL21868978]

Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) dropped 4.9 percent, Alliance & Leicester (ALLL.L: Quote, Profile, Research, Stock Buzz) shed 4.4 percent and HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) lost 4.3 percent.