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HSBC, miners drive FTSE higher, but cigarette makers drag

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* FTSE 100 up 0.5 pct, set for 1.3 pct gain in July

* HSBC profit beat, buyback boosts banks

* Imperial, BAT extend losses on FDA nicotine regulation

* Miners underpin gains

LONDON, July 31 (Reuters) - Strong results from heavyweight bank HSBC helped drive British blue-chips higher on Monday as the index headed for a monthly gain on the last trading day of July, though tobacco stocks tumbled further following a new U.S. regulatory clampdown.

The FTSE 100 rose 0.5 percent, outperforming European stocks and set to close July up 1.3 percent. Mid-caps were up 0.2 percent and headed for a monthly gain of 2.3 percent having ended June in the red - its worst month in a year.

HSBC shares rose 2.7 percent after Europe's biggest bank said profit grew 5 percent in the first half, and announced its third share buyback in a year. HSBC's gains helped the FTSE banking index stay close to a two-year high.

"Beyond this buyback therefore, HSBC has $13 billion in capital above management's 13 percent CET1 target - a focus on the investor call we think, despite the obvious uncertainties of Brexit, IFRS 9 and so on," said UBS analysts, adding their estimates already assume another $2 billion buyback will be announced at third-quarter results.

Cigarette makers Imperial Brands and British American Tobacco pulled blue-chips lower, still affected by the U.S. Food and Drug Administration's announcement on Friday that it would cut nicotine in cigarettes to non-addictive levels.

Imperial fell 4.8 percent, making it the worst-performing large-cap stock, while BAT fell 1.7 percent. Both dropped sharply on Friday.

Deutsche Bank analysts said the sharp stock reaction could be a buying opportunity in tobacco. Analysts at Morgan Stanley said the new regulation looked "extremely ambitious, in many ways impractical".

A double upgrade from brokerage RBC boosted water utility Severn Trent to the top of the STOXX, up 3.6 percent.

"As 1/8water regulator 3/8 Ofwat improves clarity on returns and costs benchmarks, we believe SVT's position at the cost frontier and its ability to achieve incentives will be revealed," said analysts.

Peer United Utilities also jumped 2.7 percent after RBC upgraded it.

"With low expectations more than priced in, UU has the biggest potential to surprise and represents the best value amongst its water peers," they said.

Miners underpinned gains as copper prices broke a two-year peak after strong manufacturing data from top commodity buyer China.

BHP Billiton, Anglo American, Antofagasta , Rio Tinto, and Glencore rose 1.9 to 2.2 percent, together adding around 11 points to the FTSE 100.

Engine maker Rolls Royce fell 3.8 percent on reports the company had told investors it may not hit its target of 1 billion pounds in cashflow by 2020.

Among mid-caps, miners Kaz Minerals and Ferrexpo also supported the index, while IT services firm FDM jumped 10 percent to a record high after reporting a 35.4 percent surge in first-half revenue. (Reporting by Helen Reid; Editing by Raissa Kasolowsky)