Burberry boost, energy strength send FTSE higher

(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)

* FTSE 100 up 0.7 pct

* Energy stocks strengthen as crude prices find foothold

* Chinese spending boosts Burberry sales

* Micro Focus slumps after FY results

* Carillion (Frankfurt: 924047 - news) finds fresh record low as another broker downgrades

By Helen Reid

LONDON, July 12 (Reuters) - British shares recovered on Wednesday, touching their highest level in two weeks as oil and gas stocks backed gains and luxury retailer Burberry jumped after stronger than expected sales.

The blue-chip FTSE 100 index was up 0.7 percent by 0900 GMT, with oil and gas stocks the top boost.

Crude prices rose above $48 after a drop in U.S. fuel inventories raised hopes a supply glut was easing.

Royal Dutch Shell (LSE: 0LN9.L - news) and BP were up 1.8 percent each, among top FTSE gainers, while Tullow Oil (LSE: TLW.L - news) and Cairn Energy gained 2 to 3 percent on the mid-cap index.

The FTSE shrugged off labour market data that showed unemployment fell to the lowest since 1975, but earnings remained weak.

"Inflation is now above the Bank's target level and real earnings growth has slipped into negative territory," said Ian Kernohan, economist at Royal London Asset Management.

"This is having a negative impact on household spending."

Spending from Chinese tourists making the most of a devalued pound, however, boosted luxury trenchcoat maker Burberry , whose shares rose 2.5 percent after its like-for-like sales rose by double the rate expected by analysts.

Burberry's CFO also said UK domestic demand remains very strong.

"This is an encouraging performance from Burberry, which looks to be at long last pulling out of the doldrums," said Steve Clayton, manager of the Hargreaves Lansdown (Frankfurt: DMB.F - news) select UK growth fund.

Micro Focus was the top FTSE faller, down 6.6 percent after disappointing full-year results.

"Micro Focus shares have been soggy since the May 9 news of poor trading at HPE Software, and now there are growing concerns about the expected U.S. flowback," Stifel analysts said in a note.

Shares (Berlin: DI6.BE - news) in education publisher Pearson (Xetra: 858266 - news) slid again, hitting a 3-month low as investors' concerns over a lower dividend guidance weighed.

Outsourcer Carillion collapsed further, down 10.3 percent to a fresh record low, taking its losses over the past three sessions to 64 percent as worries over a potential rights issue caused another broker downgrade.

Amec Foster Wheeler (Other OTC: AMCBF - news) bucked the trend among oil and gas stocks, down 6.9 percent after the oil services group said the Serious Fraud Office was investigating it over allegations of bribery, corruption and related offences.

Wood Group, which has agreed to buy Amec Foster Wheeler in a 2.2 billion pound deal, also fell 6.5 percent to a 17-month low.

"Although the outcome of the investigation is uncertain, and not anticipated to be resolved quickly, we do not expect this to have an impact on completion of the acquisition by Wood Group, which is expected to be completed in Q4 2017," said Victoria McCulloch, oil services analyst at RBC Capital Markets.

Small-cap Premier Oil (LSE: PMO.L - news) shot up 30 percent after the company made an oil discovery off the shores of Mexico.

(Reporting by Helen Reid; editing by Mark Heinrich)