FTSE up as low inflation seen boosting spending, keeping rates low

* Blue-chip FTSE 100 index up 0.3 percent

* UK inflation report supports market

* Caution after Greek talks break down

By Atul Prakash

LONDON, Feb 17 (Reuters) - Britain's top share index hit a five-month high on Tuesday on the prospects of UK interest rates staying low for a long time after data showed inflation sank to a record low in January, while miners kept rising after their recent earnings data.

Annual consumer price inflation 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," Ben Brettell senior economist at Hargreaves Lansdown (LSE: HL.L - news) , said. "I believe (interest rates) will stay lower for longer then the majority of forecasters expect."

The blue-chip FTSE 100 index was up 0.3 percent at 6,874.71 points by 1217 GMT after rising to 6,895.34, the highest level since early September.

Diageo DGE.L, the world's largest spirits maker, climbed 1.7 percent, while Dixons Carphone (LSE: DC.L - news) added 1.8 percent, putting it among the top gainers.

Shares (Frankfurt: DI6.F - news) in basic resources companies were also in demand, with the UK mining index rising 1.2 percent, supported by 1.7 to 2.4 percent gains in Rio Tinto (Xetra: 855018 - news) , BHP Billiton and Anglo American (LSE: AAL.L - news) .

"The general feeling is that much of the downside in mining stocks is already priced in. Recent numbers from miners like Rio Tinto and Anglo American suggest that the worst may be over and things should improve," said Securequity trader Jawaid Afsar.

Still, 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. Greek shares fell 1.3 percent, while Greek banks were down 3.4 percent.

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

Among other sharp movers, InterContinental Hotels (Other OTC: ICHGF - news) dropped 4.3 percent, the heaviest faller in the FTSE 100 index, with analysts citing stretched valuations despite its broadly in-line results.

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 2.8 percent after investment bank Morgan Stanley (Xetra: 885836 - news) cut its price target. (Editing by Hugh Lawson)