* FTSE closes up 0.2 percent, retreats from 13 month high

* BA soars after board considers Iberia merger

* Gains muted by weakness in commodity stocks

* BT update sees telecoms rise

By Simon Falush

LONDON, Nov 12 (Reuters) - Britain's FTSE 100 hit its highest close in three weeks on Thursday as British Airways soared with investors cheered as a merger with Iberia looked imminent, while gains were also powered by strength in banks.

But the rise was limited by falls in commodity prices hitting miners and energy stocks, which together constitute a third of the index.

The index .FTSE closed up 9.75 points or 0.2 percent at 5,276.50, it's highest close since Oct 19, and touched a peak since September 2008 after ending 0.7 percent higher on Wednesday.