* Energy issues fall as crude reverses gains
* Miners rebound helped by consolidation hopes
* UK May manufacturing output unexpectedly shrinks
By Jon Hopkins
LONDON, July 7 (Reuters) - Britain's top share index lost 0.2 percent on Tuesday as falling oil stocks, disappointing UK industrial output data and an early slide on Wall Street offset strength in miners.
At the close, the FTSE 100 was 7.91 points lower at 4,817, a two-month low, after losing 1 percent on Monday. The index is up over 20 percent since hitting a six-year low in March but is still down 5 percent for the year.
"Thin trade, Wall Street's drop and UK factory production numbers suggesting we are still in the grip of a recession put a dampener on FTSE's earlier rally," said Mic Mills, senior trader at spread betters ETX Capital.
British manufacturing output unexpectedly shrank in May, falling 0.5 percent on the month, official data showed, making it less likely the economy returned to growth in the second quarter.
Oil issues were mostly lower after an earlier bounce by crude was snuffed out. BP held on to gains of 0.2 percent, but BG Group, Royal Dutch Shell and Cairn Energy fell 0.3 to 1.3 percent.
Miners, however, provided a prop for the FTSE 100 index, reversing recent losses against a backdrop of stabilising metals prices and sector consolidation hopes.
Traders noted speculation that a $1 billion capital-raising by Brazilian group Vale might be used for a tie-up with Xstrata to help in its battle to take over Anglo American. Last year Vale called off plans to take over Xstrata.
Xstrata gained 1.4 percent, while Anglo American slipped 0.1 percent, with Eurasian Natural Resources, Rio Tinto, Antofagasta , Vedanta Resources, and Kazakhmys up 1.7-2 percent.
Banks were mixed, with Barclays and Standard Chartered extending Monday's sector rally, adding 1.1 and 1.8 percent, respectively. Standard Chartered was helped by an upgrade from Goldman Sachs to "buy" from "neutral".
But Lloyds Banking Group, Royal Bank of Scotland and HSBC shed 0.2 to 2.4 percent.
WALL STREET STUMBLES
U.S. blue chips were 1.2 percent weaker by London's close, reversing a rally seen in the previous session as investors fretted about the imminent second-quarter corporate earnings season and the fragile prospects for economic recovery.
In London, defensive stocks were mixed as caution over economic recovery hopes was balanced by the return of some risk appetite for miners and banks.
Drugmakers AstraZeneca and Shire found support, up 0.9 percent and 0.7 percent, respectively.
Shire said on late on Monday that it had filed a treatment protocol for its Velaglucerase Alfa drug for Gaucher disease and was working with the U.S. Food & Drug Administration to file a new drug application as early as possible.
Food retailers Tesco and Wm Morrison put on 0.5 and 1.1 percent, with Morrison supported by Bank of America-Merrill Lynch advising investors to buy the stock.
But other defensive stocks saw their attractions fade, notably utilities, with United Utilities, Pennon Group, and Severn Trent losing 1.5 to 2.6 percent.
Food producers and tobaccos were also weak, with AB Foods and Cadbury off 1.8 and 1 percent, while British American Tobacco and Imperial Tobacco shed 1.5 and 1 percent.
Mobile telecoms heavyweight Vodafone was also a big drag on the blue chips, losing 1 percent.
Among second-tier stocks, housebuilders stood out after Persimmon said it did not expect any further land writedowns as volumes and sales in the first half were better than 2008, though it remained cautious on outlook.
Persimmon, Barratt Developments, Bovis Homes, and Bellway gained 4 to 7.4 percent. (Editing by Will Waterman)