(Adds dropped letter 's' to 'lifts' in headline)
* FTSE 100 index gains 0.3 percent
* Higher oil prices help energy stocks
* United Utilities, Severn Trent trade ex-divs
By Atul Prakash
LONDON, June 18 Britain's top equity index edged
higher in cautious trading early on Wednesday, with a rise in
crude oil prices following heavy fighting in Iraq underpinning
Oil companies such as Royal Dutch Shell, BG Group
and Tullow Oil rose 0.3 to 1.0 percent, helping
the UK oil and gas index to gain 0.6 percent, the
top sectoral performer in the benchmark FTSE 100 index.
"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 Wealth.
"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 traded above $113 per barrel as fighting in Iraq
shut the country's biggest refinery and led to the withdrawal of
staff by foreign oil firms, stoking worries about exports from
the key oil producer.
The blue-chip FTSE 100 index was up 0.3 percent at
6,786.53 points by 0802 GMT. The index is up only 0.6 percent so
far this year, but trades just less than 3 percent below its
record high in late 1999.
However, investors avoided strong 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 3.8 percent and 2.8 percent fall
respectively in shares of United Utilities and Severn
Trent as the two companies traded without the attraction
of their latest dividend payouts.
(Reporting by Atul Prakash; Editing by Hugh Lawson)