Britain's FTSE boosted by PMI ahead of election

* FTSE 100 up 0.2 percent

* Imperial Tobacco (LSE: IMT.L - news) lifts sector with results

* Last day of campaigning before vote (Adds comments, updates prices)

By Alistair Smout and Liisa Tuhkanen

GLASGOW/LONDON, May 6 (Reuters) - Britain's top share index edged higher on Wednesday, boosted by a survey showing that the country's huge service sector unexpectedly picked up speed last month, but activity was muted ahead of Thursday's parliamentary election.

The Markit/CIPS services purchasing managers' index (PMI) climbed to an eight-month high in April, countering other signs that the economy was slowing. Indicators from Europe were also positive.

"In the UK and in Europe, the service sector PMIs were just better than expected and that's what's helping lift sentiment," said Jasper Lawler, analyst at CMC Markets.

Britain's blue-chip FTSE 100 was up 16.55 points, or 0.2 percent, at 6,943.80 by 1002 GMT.

Software (Xetra: 330400 - news) company Sage was the top gainer, up 4 percent, after posting organic revenue of 682 million pounds ($1 billion), in line with its 6 percent growth target for the year.

Reassuring results also lifted tobacco and engineering sectors. Imperial Tobacco Group rose 2.5 percent after it stood by its outlook for the remainder of the year, despite reporting a 5 percent decline in underlying tobacco sales volume in the first half of its fiscal year.

Peer British American Tobacco edged up 1 percent after Imperial Tobacco's results. The update from Imperial lifted sentiment towards the sector, which had been dented following BAT's own results that analysts described as "disappointing".

Among other positive updates, British engineering company GKN (LSE: GKN.L - news) rose 1.2 percent after it reported a 1 percent rise in organic sales and said again it expected to grow this year.

Insurer Legal & General gained 1 percent after posting record quarterly cash generation, though inflows to its asset management arm and sales of annuity pension products dropped compared with a year earlier.

Many traders were focused on Thursday's election, the most unpredictable in a generation in Britain, the world's fifth biggest economy. The two main parties are level in most polls and neither is on track to command a majority in parliament.

Stock market reaction has been muted. While specific sectors at risk of further regulation, such as utilities, have underperformed this year, domestically exposed stocks have actually outperformed the internationally oriented FTSE 100. http://link.reuters.com/gef44w

Volatility, a crude gauge of investor fear, ticked 0.6 percent lower on Wednesday and remains down nearly a quarter from January.

"Looking at the market, I don't think we can point to any massive fears over this election," Lawler said.

"It can end up being very much a reactive response if something unexpected does happen, but at the moment the assumption will be that the economy will keep improving no matter who's in government."

Analysts said that uncertainty around the election may keep investors on the sidelines for the next few weeks, however, as talks to form a new government begin.

"It's easy to see how this could mark the start of several downbeat sessions as the market attempts to predict how matters will evolve between now and the start of next week," said Tony Cross, market analyst at Trustnet Direct. (Editing by Gareth Jones)