* FTSE 100 down 0.2%, FTSE 250 down 0.1%
* Financials, oil companies biggest drags
* DS Smith drops after trading update
* Ferguson gains on demerger plans
* Inkjet technology firm Xaar plunges to 10-yr low
(Adds company news items, updates share moves)
By Josephine Mason and Muvija M
Sept 3 (Reuters) - London-listed stocks most exposed to the
British economy fell as investors worried the country was
heading for a chaotic no-deal exit from the European Union or an
early national election, while global growth concerns also
persisted.
It is relatively rare for the export-heavy FTSE 100 to move
in lockstep with sterling, but losses in companies more exposed
to the domestic economy, such as banks and housebuilders, offset
gains in big internationally focused firms.
The index was down 0.2% after climbing initially on
sterling's fall to a three-year low, underscoring deepening
concerns about the fall-out across the economy from a no-deal
Brexit and the possibility of another election. The pound later
clawed back some of those losses. The midcap index .FTMC , traditionally harder hit by Brexit
concerns, was down 0.1%.
Sterling's recovery came as British Prime Minister Boris
Johnson lost his working majority in parliament when one of his
Conservative lawmakers defected to the pro-European Union
Liberal Democrats.
An election would thrust Brexit onto an uncertain path with
three main options: a Brexit-supporting government under
Johnson, a Labour government led by socialist Jeremy Corbyn, or
a hung parliament that could lead to another referendum.
"In the short term, for many the idea that Corbyn will
possibly be the next PM is more scary than a no-deal Brexit,"
said Markus Huber, trader at City of London Markets.
Stocks considered most exposed to any hit to Britain's
wealth resulting from Brexit were the biggest fallers with
Lloyds LLOY.L and Royal Bank of Scotland RBS dropped more
than 1% each.
RBS and utilities also face the threat of nationalisation if
a Labour government was to take charge.
Losses in homebuilders, which are vulnerable to a crash in
house prices from an economic shock, were led by a 1.6% drop in
the sector's biggest player Barratt. BDEV.L
Retailers Morrison MRW.L and Marks & Spencer MKS.L were
also down roughly 1.5%. M&S also faces relegation from the FTSE
100.
HIGHER ODDS
Goldman Sachs has raised its odds of a no-deal Brexit to 25%
from 20%, but analysts from Swiss bank UBS predicted the market
might prove to be oversold. "We think that investors are placing a higher probability on
a no-deal Brexit at the end of October than is currently
warranted," the UBS analysts said in a note laying out a number
of Brexit scenarios.
"In our view, the most likely course in the weeks ahead is
that parliament will succeed in blocking a no-deal Brexit,
leading to a general election. Only then might we have some
clarity."
Oil majors gave in to a wider gloom after U.S. manufacturing
data raised concerns about a weakening global economy, while the
U.S.-China trade dispute dragged down Asia-facing financials.
Among single stock moves, DS Smith SMDS.L slid 3.5% on the
FTSE 100 as investors took note of the packaging company's
comments that volatility in the macroeconomic environment
continued even as it reaffirmed annual targets.
Just Eat JE.L shares slipped nearly 3% as a top-10
shareholder is set to vote against the food delivery company's
proposed 9 billion pound merger with Takeaway.com, saying the
deal undervalued Just Eat. Plumbing products company Ferguson FERG.L , meanwhile,
outperformed the index with a 2.1% rise after saying it would
separate its UK operations.
Among midcaps, Restaurant Group RTN.L tumbled 13% on its
worst day since November and sat at the bottom of midcap index
after posting a loss versus a year-ago profit, while small-cap
inkjet technology firm XAAR XAR.L plunged 30.7% to a 10-year
low after warning on annual results.