* FTSE 100 up 0.3 pct
* Banks lead gainers as inflation slows down
* Housebuilders gain after Bellway update
* Fenner jumps 24 pct on $1.7 bln Michelin bid (Updates prices, adds details)
By Tom Pfeiffer
LONDON, March 20 (Reuters) - Britain’s FTSE 100 index gained on Tuesday, with banks leading the way after data showed a small slowdown in inflation, while Fenner shares surged after a takeover offer from tyre maker Michelin.
In the second approach for a UK mid-cap firm in as many days, Fenner jumped 24 percent to the top of the FTSE 250 after France’s Michelin made a 1.2 billion-pound ($1.7 billion) bid for the engineering company.
“Our first take is that the deal looks good and offers a healthy premium especially in light of Fenner’s very strong recent share price performance,” said Stifel analysts.
On the large-cap index, housebuilders rose after Bellway said a strong order book would help it achieve record annual output and reported an increase in average selling prices .
The FTSE 100 was up 0.3 percent at the close, with house builders Taylor Wimpey, Berkeley Group and Persimmon among the biggest gainers. Bellway jumped 3.5 percent.
Banks contributed most to keeping the index in positive territory. Lloyds was up 1.1 percent and HSBC gained 0.7 percent.
British inflation was weaker than expected in February, according to official figures that appeared unlikely to alter the view of the Bank of England, which meets this week, that wages will grow more quickly than prices this year.
Economists expect the central bank to raise interest rates as early as May.
Software company Micro Focus, which lost 46 percent of its market value in the previous session after its chief executive quit and it cut its revenue outlook, staged a small recovery, gaining 3.6 percent.
Sophos tumbled 9.2 percent to the bottom of the FTSE 250 as traders flagged concern over leverage after the blow-up at Micro Focus, and as tech companies came under increased scrutiny globally.
Northern Trust turned negative on the company on Monday for the first time since its IPO in June 2015.
Some market watchers said UK stocks may now be a good longer-term bet after the government sealed a Brexit transition deal with its EU partners.
The transition agreement “will remove a little bit of that economic uncertainty,” said Edmund Shing, head of equity derivative strategy at BNP Paribas.
“And by the way, let’s not forget that even if the UK doesn’t have fantastic GDP growth forecasts, they are inching up rather than down, so actually maybe there is less reason for massive pessimism around UK large-cap stocks.”
Some investors may be wary of placing big bets before the U.S. Fed’s two-day policy meeting this week, with the central bank expected to raise rates for the first time this year.
Mike Bell, global market strategist at JPMorgan Asset Management, sees a chance of four Fed rate rises this year.
“I think equities can handle it as long as they don’t start to signal that they are concerned about inflation and signal more than four rate hikes this year,” Bell added. (Reporting by Helen Reid; editing by Larry King and Mark Potter)