Slump in BP knocks Britain's FTSE 100

* FTSE 100 down 1.3 pct

* BP falls 7 percent after biggest loss in 20 years

* Sainsbury (Amsterdam: SJ6.AS - news) up after agrees to buy Home Retail (Other OTC: HMRLF - news)

By Alistair Smout

LONDON, Feb 2 (Reuters) - Britain's top share index fell on Tuesday, knocked by a slump in BP after it reported its biggest loss in at least 20 years.

BP slid 7 percent after underlying replacement cost profit came in at $196 million, significantly lower than analysts' expectations of $730 million.

BP's results were worse even than when it counted the costs of the deadly Gulf of Mexico oil spill in 2010, raising questions over the sustainability of its dividend.

"This morning's results from BP have added to the gloom surrounding the sector," said Michael Hewson, chief market analyst at CMC Markets, in a note.

"While the dividend has been maintained the question now is whether it will continue to be so given that energy prices still show no signs of finding a base."

BP has been hit by a slump in oil prices to multi-year lows in 2016, and oil was on the back foot again on Tuesday.

Concerns over demand from China and oversupply sent Brent crude prices down over 1 percent, while FTSE 350 Oil and Gas stocks fell 3.7 percent, the biggest sectoral faller.

In all, the FTSE 100 was down 1.3 percent at 5,980.16 points by 0843 GMT, with energy stocks taking 28 points off the index.

Among gainers, Sainsbury rose 1.6 percent after it agreed to buy Argos-owner Home Retail for 1.3 billion pounds.

Home Retail dipped 0.3 percent, but remains up over 50 percent since it first rejected an approach from Sainsbury in January. Sainsbury is down 2.2 percent since that first offer, with analysts saying that a move to buy Home Retail could be risky.

Among mid-caps, TalkTalk rose 7.6 percent after the broadband provider forecast a "material step-up in profits" in the second half of its financial year, despite losing thousands of customers following a cyber attack last year.

(Reporting by Alistair Smout; editing by John Stonestreet)