* FTSE 100 index up 0.2 percent

* Shell (LSE: RDSB.L – news) shares rise 5 pct after results

* Fresh tension in Ukraine caps gains

By Atul Prakash

LONDON, April 30 (Reuters) – Britain’s top share index hit a seven-week high on Wednesday, with Royal Dutch Shell (Xetra: R6C1.DE – news) leading the energy sector higher after releasing an upbeat earnings report, although tensions in Ukraine capped gains.

Ukraine’s acting president said armed forces were on full military alert in case of a Russian invasion.

However, investors got some relief from Shell’s results. Its shares surged 5 percent, adding the most points to the blue-chip FTSE 100, after reporting a jump in first-quarter cashflows and a boost in dividends.

The oil major helped the UK oil and gas index to surge 2.7 percent to a two-year high and the broader FTSE 100 index to rise 0.2 percent to 6,783.33 points by 1058 GMT. The benchmark index hit an intraday high of 6,786.05, the highest levels since early March.

“With a largely upbeat earnings season, combined with M&A activity driving capital inflows, there is a real chance markets can keep the momentum going and break higher,” Mike McCudden, head of derivatives at Interactive Investor, said.

“From a technical perspective, all major indices remain in a short-term bullish trajectory. So going against the trend at current levels is a very risky strategy indeed.”

Mergers and acquisition (M&A) activity has been a major driver behind a 4-percent rise in the FTSE over the past two weeks, charts show.

Industrial group Rolls-Royce rose 1.8 percent after entering talks with Germany’s Siemens AG to sell a unit that makes equipment for the oil and gas industry and power-generation gear for utilities.

However, gains in the broader stock market were limited by growing geopolitical concerns.

Pro-Russian separatists seized control of state buildings in the town of Horlivka, tightening their grip on swathes of Ukraine’s industrial east, in a major escalation of their revolt despite new Western sanctions on Russia.

While Britain’s top 100 companies make only 0.3 percent of their sales to eastern Europe, Thomson Reuters Datastream shows, tensions between Russia and the West and the prospect of costly sanctions have lowered appetite for assets which depend on economic growth, such as shares.

“Positive corporate and economic data in recent weeks have unfortunately more or less been neutralised by the events unfolding in Ukraine. For now we are looking to sell into rallies and to buy on weakness,” Peregrine & Black senior sales trader Markus Huber said.

Among other sharp movers, British American Tobacco (LSE: BATS.L – news) fell 2 percent after recording a 12-percent drop in quarterly revenue, which it blamed on adverse foreign exchange moves. Excluding the impact of exchange rates, revenue rose 2 percent.

On the other hand, gas group BG Group (LSE: BG.L – news) rose 1.6 percent on speculation, fuelled by a report in the Financial Times, that BHP Billiton (NYSE: BBL – news) might make a bid. The mining group’s shares were flat.

“I think the market is taking more notice of these rumours at the moment,” Galvan head of trading Ed Woolfitt said. “I’m nor entirely sure about it … as a deal but with a lot of the recent moves on rumours I shall certainly be trading on it.”

Nine blue chips, including supermarket Tesco (Xetra: TCO.DE – news) traded ex-dividend, knocking a combined 6.53 points off the FTSE. Tesco (Frankfurt: TS3.F – news) shares were down 3.3 percent. (Additional reporting by Francesco Canepa and Tricia Wright)