* FTSE 100 index gains 0.3 percent
* High oil prices help energy stocks
* Shire boosted by ongoing bid speculation
* United Utilities, Severn Trent trade ex-div
By Tricia Wright
LONDON, June 18 (Reuters) - Britain's top equity index advanced on Wednesday, with oil companies lifting the market due to high crude prices in the wake of heavy fighting in Iraq, OPEC's second-largest producer.
Oil firms such as Royal Dutch Shell and BG Group rose 1.6 percent and 0.8 percent respectively, helping the UK oil and gas index gain 1.2 percent, the top sectoral performer in the FTSE 100 by some margin.
"The market is very closely watching the escalating violence in Iraq, a major oil producer. In the short term, higher oil prices may benefit some oil companies, but in the longer term, if it continues, it will result in an oil shock," said Henk Potts, equity strategist at Barclays.
"Clearly that would be an overall negative for the economy as higher oil prices have the potential to hurt global growth and raise input cost of companies."
Brent crude oil rose towards $114 a barrel as Sunni militants pushed forwards in northern Iraq, hitting the country's biggest refinery and stoking concerns about oil exports as some firms pulled foreign workers out.
The FTSE 100 was up 21.75 points, or 0.3 percent, at 6,788.52 points by 1313 GMT. The index is up only 0.6 percent so far this year, but trades just 2.4 percent below its record high in late 1999.
Shire topped the blue-chip leader board, up 2.8 percent, as bid speculation continued to swirl around the healthcare group. It had seen solid gains on Tuesday after sources told Reuters it had hired investment bank Citi as an adviser, expecting to receive takeover approaches.
In the broader market, investors avoided heavy bets ahead of the Federal Reserve's two-day policy meeting. The U.S. central bank is widely expected to cut another $10 billion from its monthly bond purchases, while investors will be watching for any comments on when the Fed would begin to raise interest rates and its outlook for the economy.
Data released on Tuesday showed a surprisingly high reading for U.S. inflation, which sparked speculation of a hawkish tilt to the Fed's policy outlook.
Gains were also capped by a 2.8 percent and 2.4 percent fall respectively in shares of United Utilities and Severn Trent as the two companies traded without the attraction of their latest dividend payouts. (Additional reporting by Atul Prakash; Editing by Hugh Lawson)