FTSE holds firm near record highs, commodity shares up

* FTSE 100 flat but remains close to record highs

* Energy, mining stocks gain on China stimulus hopes

* Broker price target cuts weigh on Burberry

By Atul Prakash

LONDON, May 21 (Reuters) - Britain's top share index hovered just below last month's record highs on Thursday, with expectations China will launch further stimulus to support its economy helping miners and energy stocks tracking gains in oil prices.

The UK Oil and Gas index rose 0.9 percent as crude rose for a second day, supported by expectations that a global supply glut is starting to ease and by fighting in oil-producing Iraq. Oil majors Royal Dutch Shell (Xetra: R6C1.DE - news) and BP both rose about 1 percent.

Miners BHP Billiton and Antofagasta (Other OTC: ANFGF - news) gained nearly 1 percent each after a survey showed Chinese factory activity contracted for a third month in May, suggesting weakness persists in the world's biggest metals consumer. That helped lift the UK mining index 0.4 percent.

"Investors are viewing 'bad news as good news'. I feel China will continue to be aggressive and cut rates and launch other forms of stimulus to meet its growth targets," IG (LSE: IGG.L - news) market analyst David Madden said.

China's central bank is widely expected to cut interest rates further in coming months, on top of three reductions since November, and may also lower banks' reserve requirements again to reduce companies' borrowing costs and encourage more lending.

The blue-chip FTSE 100 index was flat at 7,009.44 points by 1421 GMT, leaving it less than 2 percent below a record high of 7,122.74 points reached in April. The FTSE remains up by around 7 percent since the start of 2015.

"We stand by 7,100 points as a near-term target for the FTSE. We are still buyers of this market," said Thames Capital Markets' trader Gerren O'Neill.

The market showed little reaction to data showing British retail sales rose more strongly than expected in April, recovering from a surprise fall in March, as unusually warm weather encouraged shoppers to buy new clothes.

But higher energy prices hurt travel and leisure stocks. Shares (Frankfurt: DI6.F - news) in British Airways owner IAG, airliner easyJet and Cruise operator Carnival (LSE: CCL.L - news) fell 1.9 to 2.2 percent. Carnival also dropped as its shares traded without the attraction of their latest dividend payouts.

Luxury goods group Burberry fell 1 percent as several brokers reduced their price targets on the company's shares. Burberry shares slumped by 5 percent on Wednesday after the company cut its 2016 profit guidance.

(Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans)