UPDATE 1-FTSE 100 edges lower after downbeat China data; Ocado rallies

Britain's FTSE 100 inched lower on Monday as worries over a slowdown in China offset relief over the reopening of the U.S. government, while Ocado rallied on a report of a deal with Marks & Spencer.

The blue-chip index had dipped 0.1 percent at 1033 GMT. So had the FTSE 250. Shell and BP were weak as oil prices fell on signs that output may rise further, with U.S. companies adding rigs for the first time this year.

British American Tobacco and Imperial Brands gave up 1.8 percent and 2.6 percent respectively and were among the top drags on FTSE 100. But losses were capped as mining stocks added 1.5 percent, becoming the best blue-chip performers, as Chinese iron ore prices jumped after a deadly incident at top producer Vale over the weekend.

Overnight, Asian shares rallied after Washington temporarily ended the longest U.S. government shutdown in history. But data from China showed earnings at its industrial companies shrank again in December. That rekindled tensions among investors already rattled by repeated signs of a slowdown in China amid its ongoing trade dispute with the United States.

"At the start of a stacked week ... the FTSE suffered the kind of muted, negative open that has become routine in the last few sessions," Spreadex analyst Connor Campbell wrote. Investors were also bracing for votes in parliament on Tuesday aimed at breaking a Brexit deadlock. With just two months before Britain is due to leave the European Union, there are still no signs of an agreement on the terms that would get through government.

A Guardian report that Ocado has held talks with Marks & Spencer on a food-delivery service helped Ocado shares jump 6 percent to its highest since September. They were up 4.1 percent by 1007 GMT. M&S added 2 percent, reaching levels not seen since late November. Another boost to FTSE 100 came from Vodafone, which advanced 1.4 percent, recouping some of its losses last week after a quarterly update. BT also rose more than 1 percent.

Mining companies were also buoyed by comments from Jefferies analysts, who upgraded their forecast for iron ore price and recommend investors buy Rio Tinto, BHP and Anglo American. Airline Flybe jumped 18 percent after confirming that its largest shareholder had urged the company to remove its chairman and investigate its cut-price sale to a consortium that included Richard Branson's Virgin Atlantic, Stobart Group and Cyrus Capital.

Petra Diamonds slumped more than 10 percent as lower diamond prices at its flagship Cullinan mine overshadowed an increase in half-year revenue. (Reporting by Muvija M and Shashwat Awasthi in Bengaluru; editing by Josephine Mason, Larry King)