FTSE up, with disinflation expected to boost spending, keep rates low

* Blue-chip FTSE 100 index up 0.6 percent

* UK inflation report supports market

* Caution after Greek talks break down (Updates with closing prices)

By Atul Prakash

LONDON, Feb 17 (Reuters) - Britain's top share index climbed to a five-month high on Tuesday on expectations UK interest rates will stay low, after data showed inflation sank to a record low in January.

The annual inflation rate fell to 0.3 percent last month from 0.5 percent in December, official data showed, largely reflecting the drop in oil and food prices.

"The combination of low inflation, rising wages and falling fuel prices are great news for the UK consumer," said Ben Brettell, a senior economist at Hargreaves Lansdown (LSE: HL.L - news) . "I believe (interest rates) will stay lower for longer then the majority of forecasters expect."

The FTSE 100 index was up 0.6 percent at 6,898.13 points at the close, its highest since early September.

Britain's top share index outperformed European shares, which were roughly flat after a volatile session as a deal between Greece and its euro zone creditors remained elusive.

Consumer staple stocks, which popular defensive plays and have substantial exposure to the rest of the world, added 19 points to the index.

Diageo (LSE: DGE.L - news) , the world's largest spirits maker, Imperial Tobacco and British American Tobacco (LSE: BATS.L - news) rose 25-1.9 percent -- the top gainers on the index.

Investors remained cautious after debt talks between Greece and euro zone finance ministers broke down on Monday, putting pressure on Greek shares and on the broader European stock market.

"Another breakdown in communication, another nearly signed agreement, and another day with the Greek debt crisis unresolved," said Spreadex financial analyst Connor Campbell.

InterContinental Hotels (Other OTC: ICHGF - news) dropped 1.6 percent. Analysts cited stretched valuations, even though its results were broadly in line with forecasts.

The stock had risen almost 30 percent over the past 12 months until Monday's close, against about a 3 percent rise for the FTSE 100.

Royal Mail (LSE: RMG.L - news) slipped 2.3 percent after investment bank Morgan Stanley (Xetra: 885836 - news) cut its price target. (Additional reporting by Alistair Smout; Editing by Larry King)