Stronger oil stocks and surge in Shire lift UK's FTSE

* FTSE 100 closes up 1.7 pct at 6,372.33 points

* Higher oil price lifts BP and Shell (LSE: RDSB.L - news)

* Shire (Xetra: S7E.DE - news) buoyed by Paulson comments on Allergan (NYSE: AGN - news) tie-up

* ARM slumps after Q3 results disappoint

By Sudip Kar-Gupta

LONDON, Oct 21 (Reuters) - Gains in big oil companies and drugmaker Shire lifted Britain's top equity index on Tuesday, which extended a rebound after falling to 15-month lows last week.

Advances of around 3 percent in both BP and Royal Dutch Shell added the most points to the blue-chip FTSE 100 index, as stronger oil prices lifted energy stocks.

Brent crude oil, which had fallen to four-year lows last week, held onto gains at around $86 a barrel after data showed robust oil demand in China, the world's largest energy consumer.

"The oil majors are benefiting from a rise in the underlying oil price, but unless the crude oil price can move much further beyond last week's lows and hold onto the rebound, those oil stocks could fall back again," said Dafydd Davies, partner at Charles Hanover Investments.

The FTSE 100 index closed up by 1.7 percent, or 105.26 points, at 6,372.33 points.

Shire rose 2.6 percent after Reuters reported that Allergan shareholder Paulson & Co was urging the firm to merge with Shire as an alternative to a deal with hostile bidder Valeant Pharmaceuticals.

Online fashion retailer ASOS (Other OTC: ASOMF - news) , which is not listed on the FTSE 100 but is part of the broader London stock market, also surged by 16.3 percent.

ASOS expressed confidence it could reach its annual sales target of 2.5 billion pounds ($4 billion) by 2020, and said price cuts would help to reignite growth after three profit warnings this year.

ARM SLUMPS

Chip designer ARM, however, missed out on the broader market rally, tumbling 5.3 percent after its third-quarter results lagged some market forecasts.

The FTSE 100 hit a peak of 6,904.86 points at the start of September, its highest level since early 2000.

The index slumped last week after weak European economic data, but some traders said the FTSE's rebound at the start of this week meant there was a good chance it could now push on for the rest of October. The FTSE remains down by around 6 percent since the start of 2014.

"While there is still the possibility that we may re-test last week's lows, the chances have diminished somewhat as we head into November with a possibility of a good rally to the year-end," said Securequity sales trader Jawaid Afsar. (Additional reporting by Atul Prakash; Editing by Ruth Pitchford and Susan Fenton)