FTSE flat in early trade; profit-takers hold sway

* FTSE down 0.16 percent

* Financials mixed; profit-taking after recent rally

* Oils advance with crude; Tullow Oil up on find

* Selected miners higher; Xstrata gains after update

By Jon Hopkins

LONDON, Oct 21 (Reuters) - Britain's leading share index edged higher in early trade on Tuesday after two sessions of good gains as the lift from easier money market conditions was offset by profit-taking emerging in certain stocks.

At 0851 GMT, the FTSE 100 index .FTSE was 7.06 points or 0.16 percent lower at 4,275.61, having pulled back from an early advance to a peak of 4,347.69.

The blue chip index closed 219.66 points higher at 4,282.67 on Monday.

"After an initial spike higher on follow-on interest following gains in the market U.S. market, there is a little bit of profit-taking coming through after two sessions of gains," said Ben Timms, senior trader at Blue Index.

"In times of uncertainty, investors are often quick to take their profits, and while we like to think the positive momentum will continue there is little economic news to provide direction today, with nothing out of the U.S. and only a CBI report in the UK," Timms added.

The FTSE has gained about 11 percent in the last three trading days so far, but is down over 33 percent this year.

Selected banking issues ran into some profit-taking, notably Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), down 5.3 percent following a 23 percent gain on Monday as investors continued to assess the impact of the government bail-out on the firm's ability to grow dividends. HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) also suffered some profit-taking after its move on Monday to expand in Indonesia with the acquisition of an 89 percent stake in Bank Ekonomi (BAEK.JK: Quote, Profile, Research, Stock Buzz).

HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), however, topped the FTSE 100 leader board, up 8.1 percent, after falling on Monday, helped by supportive moves by its biggest shareholder Standard Life (SL.L: Quote, Profile, Research, Stock Buzz) on its rescue takeover by Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz), which rose 0.35 percent.

Insurer Prudential (PRU.L: Quote, Profile, Research, Stock Buzz) slipped 1 percent, paring some of Monday's gains.

Pru said its sales rose 15 percent in the first nine months of the year, and confirmed it was interested in buying parts of American International Group's (AIG.N: Quote, Profile, Research, Stock Buzz) Asian business

"Pru delivered a good set of numbers, but after good rally yesterday which saw it gain all of last week's losses, and now it is looking fairly priced," Timms said.

Fellow blue chip insurers rose, with Aviva (AV.L: Quote, Profile, Research, Stock Buzz) up 5.9 percent, Admiral Group (ADML.L: Quote, Profile, Research, Stock Buzz) ahead 3.8 percent, and Legal & General (LGEN.L: Quote, Profile, Research, Stock Buzz) up 1.8 percent.

COMMODITIES PROVIDE PROP

Commodity stocks provided the underlying strength in London as crude prices CLc1 firmed slightly, although metal prices eased back after recent strong gains, as gold came under pressure from a stronger dollar .DXY.

Miner Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) rose 7 percent after a third quarter trading update helped by the firm's comment that it has no significant debt refinancing requirements until 2011. [ID:nWLA716]

Elsewhere in the sector, Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz) added 11.6 percent, with Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz), Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz), Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz), Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz) up between 2.1 and 5.0 percent.

Explorer Tullow Oil (TLW.L: Quote, Profile, Research, Stock Buzz) was a standout gainer among blue chip energy stocks, up 6 percent after the firm and its midcap partner, Herigage Oil (HOIL.L: Quote, Profile, Research, Stock Buzz), up 16.3 percent, unveiled a significant new oil discovery in Uganda.

Fellow explorer Cairn Energy (CNE.L: Quote, Profile, Research, Stock Buzz) gained 4.8 percent, while integrated oils BG Group (BG.L: Quote, Profile, Research, Stock Buzz), BP (BP.L: Quote, Profile, Research, Stock Buzz), and Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) added between 0.3 and 5.5 percent reflecting a steady crude price ahead of this week's OPEC meeting, as speculation mounted that the cartel may look to trim output.

Asian markets were generally higher on Tuesday, carrying on from good gains on Wall Street Monday, with U.S. stocks soaring as credit market conditions showed signs of improvement, and after comments from U.S. Federal Reserve Chairman Ben Bernanke.

In a speech on Monday, Bernanke backed government spending as a fresh measure to support the world's biggest economy following the turmoil since the collapse of Lehman Brothers. (Editing by Hans Peters)