Britain's FTSE lags after sterling surge

* FTSE 100 index flat

* May's Brexit comments seen supporting the pound

* Commodities-related stocks in demand

* Essentra (LSE: ESNT.L - news) and Mitie down on poor updates (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon, see cpurl://apps.cp./cms/?pageId=livemarkets)

By Alistair Smout and Atul Prakash

LONDON, Nov 21 (Reuters) - Britain's top equity index was steady on Monday, underperforming European markets after a jump in the value of sterling, which some attributed to talk of a transitional deal for Britain to leave the European Union.

Britain's FTSE ended flat in percentage terms at 6,777.96, lagging small gains for continental indexes.

It fell back sharply in a move that correlated with strong gains for sterling.

The pound has traded in a volatile way since Britain voted to leave the European Union. Some attributed Monday's move to a delayed reaction to hints by Prime Minister Theresa May that she would address concerns that Britain's companies were faced with a "cliff edge" when it came to Brexit.

Britain's FTSE is priced in pounds with many companies deriving earnings from abroad, meaning it often moves inversely to the pound.

"It appears that May's (attempted) reassurances that the government is working to avoid a Brexit 'cliff edge' for businesses, comments that perhaps suggest a transitional deal, have caused sterling's resurgence," said Connor Campbell, market analyst at Spreadex, in a note.

"This in turn dragged the FTSE back below 6,800, despite the chunky gains made in the oil and mining sectors."

Defensive stocks were on the back foot, continuing the recent trend of a rotation to cyclical sectors. Pharmaceuticals and tobacco stocks were among the top sector fallers.

Gains in commodities stocks put a cap on the fall, however, with the UK mining index and oil and gas index rising 1.8 percent and 1.6 percent respectively.

The two sectors were supported by a rally in industrial metals on expectation of an increase in metals demand, and as oil prices hit a three-week high on hopes that oil producers might strike a deal to limit output.

Shares (Berlin: DI6.BE - news) in Randgold Resources, Glencore (HKSE: 0805.HK - news) , Antofagasta (Other OTC: ANFGF - news) , Fresnillo (Frankfurt: A0MVZE - news) , Anglo American (LSE: AAL.L - news) and BP rose 1.9 to 3.7 percent. Seven of the top eight gainers in the FTSE 100 index were commodities-related stocks.

But mid-caps fell 0.8 percent, underperforming the broader market following profit warnings by some companies in the index.

There was a 20 percent slump in Essentra after the supplier of speciality plastic and packaging components cut its full-year adjusted operating profit estimate for a second time this year.

Outsourcing firm Mitie fell nearly 10 percent after issuing a second warning on its full-year results as customers delayed placing orders due to uncertainty following Britain's vote to leave the European Union and as conditions in its government services business worsened.

"The UK economy is performing well but Mitie seems to be finding it very hard going. The firm had already seen its share price slump after warning on profits in September and today's half-year trading statement confirms the outsourcer is in a mess," Neil Wilson, analyst at ETX Capital, said. (Editing by Catherine Evans)