High-flying easyJet leads Britain's FTSE up; Sky in focus

* FTSE 100 up 0.2 pct

* easyJet leads gainers after trading update

* Sky (Frankfurt: 893517 - news) gains as regulator suggests remedies for Fox takeover

* Retailer Brown Group tumbles after cut to margin forecast (Updates prices, adds detail)

By Danilo Masoni and Helen Reid

MILAN, Jan 23 (Reuters) - A rally of more than 5 percent in airline easyJet following a trading update drove Britain's top share index higher on Tuesday, while Sky was in focus after the competition watchdog suggested ways that could make a Fox takeover acceptable.

The FTSE gained 0.2 percent on the day, in line with the broader European market as the pound gave back some of its gains, lessening pressure on the internationally-exposed index.

The mid-cap index inched up 0.1 percent as investors assessed mixed earnings updates.

EasyJet (Frankfurt: A1JTC1 - news) shares were the biggest gainers on the FTSE and enjoyed their best day's gains since early October.

The company said a reduction in capacity by competitors was contributing to a positive trading environment and helping revenues, in the first trading update under new boss Johan Lundgren.

"EasyJet benefited from a combination of Ryanair cancellations and the demise of a trio of peers removing some capacity from the market," said ETX Capital analyst Neil Wilson.

Wilson (Oslo: WILS.OL - news) however said that the problems of overcapacity in European short haul combined with pricing pressures meant it will remain "tough going" for carriers.

"EasyJet needs to maintain focus on cost control, which it is achieving at present," he added.

Sky rose 2.3 percent after Britain's competition regulator CMA told Rupert Murdoch the $15 billion takeover of Sky by Twenty-First Century Fox was not in the public interest and would be blocked unless there was a way to prevent the tycoon from influencing the network's news output.

"For us, a structural remedy such as the spinning off or divesting of Sky News would present the easiest path to deal completion," said Neil Campling at Mirabaud Securities.

"It is only on plurality grounds that the CMA has concerns, and that is a fixable situation as per the olive branches being offered through a range of potential remedies," he added.

Elsewhere, gains among heavyweight oil companies provided support to the FTSE, as crude oil prices rose, while a broker upgrade boosted shares in Croda International (Other OTC: COIHF - news) .

Miners were a weak spot with Fresnillo (Frankfurt: A0MVZE - news) , Evraz , Anglo American (LSE: AAL.L - news) and Glencore (Frankfurt: 8GC.F - news) leading losers with declines of 2.9 to 4.2 percent.

Among mid-caps, Brown Group tumbled 17 percent after the clothing retailer trimmed its product gross margin forecast for the fiscal year as it spends heavily on promotions to drive sales.

Brown's outlook downgrade follows other disappointing updates among retailers, which are being hit by a slowdown in consumer spending.

Pets at Home (Frankfurt: A1XFE7 - news) however jumped 6 percent after the UK's largest pet shop chain reported a jump in third-quarter revenue on strong demand for its products during Christmas.

(Reporting by Danilo Masoni and Helen Reid; Editing by Mark Heinrich)