Glaxo investigation pegs back Britain's FTSE

* FTSE 100 trades flat

* Glaxo falls after fraud office opens criminal investigation

* Weir retreats after walking away from Metso (Dusseldorf: VLM.DU - news)

* Index in sight of all-time highs

By Tricia Wright and Alistair Smout

LONDON, May 28 (Reuters) - British blue-chip shares traded flat on Wednesday, with GlaxoSmithKline (Other OTC: GLAXF - news) lower after domestic authorities launched a criminal investigation into its commercial practices.

The drug maker fell 1.4 percent on the fraud office probe which poses a new challenge for the firm, already facing claims of bribery in China and four other countries.

But with concern about its practices already well flagged, traders said Glaxo could be recover after its weak opening.

"There are plenty of companies not just in the pharma sector that will be investigated for unlawful practices ... This may turn out to be a common theme across the industry," said Atif Latif, director of trading at Guardian Stockbrokers.

"With the Serious Fraud Office investigation, we think that now it is in the open, the downside ... may be limited."

Engineering group Weir meanwhile retraced gains made earlier in the session after it abandoned efforts to acquire rival Metso when the Finnish company rejected a second, improved takeover bid.

Investors concerned the UK firm might overpay expressed relief that the bid had been snubbed before shifting their attention to the possibility of another planned takeover that could engender further uncertainty.

"That might have opened Weir's hand in terms of its acquisitive nature. In other words, even if this Metso thing isn't going to happen, that's not to say they won't be looking elsewhere potentially," said Richard Hunter, head of equities at Hargreaves Lansdown (LSE: HL.L - news) .

The FTSE 100 was up 3 points - flat in percentage terms - at 6,847.94 points by 1030 GMT. The index of British blue chips rose 0.4 percent on Tuesday, and is now just 0.7 percent shy of May's 2014 high.

That peak is the last resistance level before all-time highs set in December 1999. Wednesday's trade saw the index move within 1.5 percent of its highest-ever level.

The FTSE is lagging other indexes including the DAX, which has already hit new highs for the year.

Valerie Gastaldy, who heads technical analysis firm Day By Day, said it was too early to tell whether the rebound on Tuesday was the start of a challenge for new 2014 highs, and noted that the move was made in low volumes.

"With those limitations, we do favour new high on the FTSE 100 at around 6,945 in June," she said. (Editing by Catherine Evans)