* FTSE 100 index rises 0.6 percent
* Housebuilders firm; Persimmon results robust
* Soft UK inflation data cuts rate rise chances
* Imperial Tobacco gains on positive outlook
* BHP drops; holds off on share buyback
By Tricia Wright
LONDON, Aug 19 Britain's top share index climbed to its highest closing level in three weeks on Tuesday, bolstered by housebuilding stocks after robust results from Persimmon.
A day after Bovis Homes unveiled a big jump in profits and upbeat dividend news, builder Persimmon delivered a 57 percent rise in pretax profit. It sold 6,408 new homes in the six months to end-June and said it was trading ahead of last year in the traditionally slower summer period.
"This is another strong set of results from a housebuilder, backed up by substantial investment in the land bank, very strong free cash flow generation, an improved balance sheet and a significant payout to shareholders under the group's capital return plan," said Mark Cartlich, analyst at Sanlam Securities.
Sentiment in the sector was also helped by data which showed British inflation fell more than expected, easing pressure on the Bank of England (BoE) to raise interest rates.
Persimmon rose 1.1 percent, while the Thomson Reuters UK Homebuilding index was up 1.8 percent. It had already been buoyed last week by a Quarterly Inflation Report from the BoE that was perceived as dovish.
After the release of that report, Governor Mark Carney said rates were unlikely to rise until wages picked up, although he moderated those comments in an interview to a newspaper at the weekend.
The latest consumer inflation data, which showed that inflation was well below the BoE's target of 2 percent, added to expectations that rate hikes were likely only in the first quarter of next year.
"I think the inflation figure from the Bank of England's point of view should be a bit of a shocker really. It's very subdued inflation, it's still below its target, and it just seems nonsense for Carney to be talking about interest rate rises," said Colin McLean, SVM Asset Management managing director.
He therefore saw the data as a positive for housebuilders, as low interest rates translate into cheap mortgages.
Meanwhile, construction firm Carillion raised for the third time its merger proposal for engineering company Balfour Beatty, with new terms that value its rival at 2.1 billion pounds ($3.5 billion).
Balfour Beatty rose 3.2 percent, while Carillion shed 0.2 percent.
Elsewhere, cigarette firm Imperial Tobacco climbed 2.3 percent. It said it expected to report modest adjusted earnings growth in the full year after volumes from its top growth brands rose by 3 percent in the first nine months.
The UK blue-chip FTSE 100 index ended up 38.06 points, or 0.6 percent, at 6,779.31 points, its highest close since July 29.
Concerns over the crisis in Ukraine have been less of a focus in the past two days, and equities rose on Monday after Russia's Foreign Ministry said some progress had been achieved during talks with Germany, France and Ukraine over the conflict.
While the situation was still tense, with Ukrainian government forces reporting new advances against pro-Russian separatists, traders were encouraged by the fact the situation had not deteriorated significantly.
However, gains in the broader market were capped by sharp falls in the shares of mining company BHP Billiton, which held off announcing a highly anticipated buyback. It reported an 8 percent rise in second-half underlying attributable profit to $5.69 billion - slightly below forecasts.
Some investors had been hoping for a buyback of up to $8 billion, according to UBS estimates.
A near-5 percent drop in BHP shares contrasted with a near-5 percent rise in Denmark's A.P. Moller-Maersk as investors welcomed an unexpected buyback from the container shipping company. (Additional reporting by Atul Prakash; editing by Ralph Boulton)