UPDATE 2-Prospect of avoiding no-deal Brexit boosts UK-focused shares

* FTSE 100 down 0.1%, FTSE 250 up 0.5%
* Exporters drag down blue-chip index
* Midcap office space provider IWG at record high
* Exporters fall as pound gains

(Updates with closing prices, recasts)
By Muvija M
Aug 27 (Reuters) - Promises from Britain's opposition
parties to avert a no-deal Brexit led to gains for the
domestically focused midcap index as well as blue-chip holiday
companies and airlines, although gains in the local currency
weighed on the exporter-heavy FTSE 100.
The FTSE 250 .FTMC added 0.5% with gains across all but
one sector, tracking gains in sterling as some lawmakers vowed
to try and pass a law to prevent Britain tumbling out of the
European bloc without a deal at the end of October. However, the FTSE 100 .FTSE , which earns more than
two-thirds of its profits abroad, gave up 0.1% and
underperformed its European peers who got a lift as Italy's
Democratic Party made progress in forming a government with the
anti-establishment 5-Star movement.
British housebuilders .FTNMX3720 , typically more
vulnerable to any economic hit to the UK, jumped nearly 2% to
their highest level in a nearly a month. Travel and related
firms including TUI TUIT.L and British Airways owner IAG
ICAG.L also gained.
Investors clung on to hopes that a no-deal exit from the EU
could be averted as parliament is set to come back from its
summer break next week.
The opposition parties are gearing up for a battle with
Prime Minister Boris Johnson, who has pledged to take Britain
out of the European Union on Oct. 31, with or without an exit
agreement.
"While this may seem a plausible possibility, it ignores the
fact that to prevent the UK leaving the EU without a deal MPs
(members of parliament) still only have one plausible option and
that is to revoke article 50," CMC Markets analyst Michael
Hewson wrote, referring to Britain's notification of withdrawal.
On the trade front, despite U.S. President Donald Trump's
prediction of a trade deal with China after positive gestures by
Beijing, traders still awaited more details after tit-for-tat
tariffs weighed down financial markets last week. While Trump repeated his assertion that Chinese officials
had contacted U.S. trade counterparts offering to resume
negotiations, China has declined to confirm that.
"The number of twists and turns in the trade dispute,
particularly more recently, have made the markets incredibly
challenging to trade," London Capital Group analyst Jasper
Lawler said.
Among news-driven moves, serviced offices provider IWG
IWG.L scaled a life-time high with a 4% rise and was among the
biggest boosts to the midcap index, after Sky News reported over
the weekend that the company was planning to list its U.S. arm
in New York for 3 billion pounds.
Carpetright CPRC.L surged 11% as its biggest shareholder,
Meditor Capital Management, is set to buy the retailer's 40.7
million pound line of credit from its lenders. Peel Hunt
analysts said the news took away any uncertainty pertaining to
the company's refinancing.