* FTSE closes flat; mining, tobacco shares up

* Royal Mail (Other OTC: ROYMF – news) shares slips after results

* SABMiller (LSE: SAB.L – news) gains on cost-saving target

By Atul Prakash

LONDON, May 22 (Reuters) – Britain’s top share index ended flat on Thursday as stronger miners on steadier China data and a rise in tobacco stocks on deal-making hopes were offset by sharp declines in firms including Royal Mail and AstraZeneca (NYSE: AZN – news) .

Miners were boosted by signs of stabilisation in the economy of top metals consumer China, where the factory sector turned in its best performance in five months in May, a private survey showed.

The UK mining index rose 0.7 percent, the top sectoral gainer on the blue-chip FTSE 100 index, helped by a 1.9 percent gain in Antofagasta (Other OTC: ANFGF – news) and a 1.3 percent rise by Rio Tinto (Xetra: 855018 – news) .

Deal-making activity also gave the market a fillip, with news that British American Tobacco (LSE: BATS.L – news) could back a potential merger between Reynolds American (NYSE: RAI – news) and Lorillard (Frankfurt: LLV.F – news) in a complex three-way transaction helping tobacco stocks.

British American Tobacco rose nearly 3 percent before paring gains later to end 0.5 percent firmer. Imperial Tobacco (LSE: IMT.L – news) ended 0.9 percent higher.

“The environment for M&A is quite positive at the moment as uncertainties are diminishing and the confidence of company CEOs is rising. We are also seeing an improvement in economic activity,” said James Butterfill, equity strategist at Coutts.

“It’s quite likely that M&A activities will remain robust and continue to provide support to the stock market.”

However, the FTSE 100 ended flat at 6,820.56 points. The index finished just less than 2 percent below its record high of 6,950.60 points, recorded in December 1999.

Mining (LSE: MIR.L – news) and tobacco shares helped the market to stay in positive territory during most of the trading sessions. However, there were sharp declines in some individual shares.

AstraZeneca fell 3.3 percent on continued uncertainty over whether a $ 118 billion takeover bid by Pfizer (TLO: PF-U.TI – news) might be revived, following gains of more than 2 percent on Wednesday.

And the recently privatised Royal Mail fell 9.7 percent to 519.0 pence, the biggest FTSE 100 faller, after warned about the strength of competition as it reported a rise in profits.

Jordan Hiscott, senior trader at Ayondo Markets, said the shares had recently been at the upper end of their range, some 70 percent above the 330 pence flotation price, and the figures would have needed to be better aleppo pls to drive further gains.

“This morning’s release of the headline figure for the full year pre-tax profit, coming in at 363 million pounds ($ 613 million) instead of the expected 400 million, shows increasing challenges in the face of competition.”

Among other movers, global brewer SABMiller rose 3.5 percent, the top gainer on the FTSE 100 after announcing a new savings target to help cushion it against difficult trading in a range of markets.

(Additional reporting by Tricia Wright; Editing by John Stonestreet/Ruth Pitchford)