* FTSE 100 up 0.4%, FTSE 250 down 0.7%
* Housebuilders, airlines hit by Brexit upheaval
* BP gains after divestment plans
* Thomas Cook plunges among smallcaps (Updates with closing prices)
By Muvija M and Josephine Mason
Aug 28 (Reuters) - Britain’s Brexit-sensitive domestic stocks fell on Wednesday as renewed worries about the country leaving the European Union without a deal pressured sterling and sapped investor appetite for stocks sensitive to slowing consumer spending.
Fresh selling kicked in after Prime Minister Boris Johnson moved to limit parliament’s opportunity to derail his Brexit plans by cutting the amount of time it sits between now and EU exit day on Oct. 31.
The mid-cap FTSE 250 index skidded 0.7%, as worries that a disorderly no-deal Brexit would hurt the economy rose. Half of mid-caps’ income is generated in the UK.
The index had gained in the previous session as sterling rose after a pledge by opposition parties to try to avert a no-deal Brexit.
But the new bout of political upheaval slammed sterling on Wednesday and boosted exporter-heavy FTSE 100 which was up 0.4% and far outperforming the broader European bourse. The majority of FTSE constituents make their revenue abroad.
The blue chips index was also propped up by gains in oil major BP after it announced plans to sell its Alaskan assets for $5.6 billion and supermarkets, which were lifted by a positive broker note.
But the rising possibility that Britain could quit the EU without an agreement kept many investors on the sidelines.
“Until we get a change in the dynamic, they’re going to continue to underperform,” said Rory McPherson, investment director at Psigma Investment Management.
Housebuilders were the hardest hit. Persimmon, Berkeley, Barratt Developments and Taylor Wimpey were the biggest decliners on the FTSE 100, down 2.9% to 3.6%. The sector has been hit by worries that a hard Brexit will damage the British economy.
Airlines, which are sensitive to consumer spending, were also under pressure. British Airways owner IAG was down 1.4% and easyJet was down 2.7%.
Prudential, which has a big Asian exposure, fell 1.6% to its lowest since November 2016 amid continued worries about damage to its business in Hong Kong due to the protests in the former British territory.
The stock has fallen almost 30% since early July as the demonstrations have escalated.
The FTSE 100 is on course for its steepest monthly fall in four years, hammered by sharp escalations in the Sino-U.S. trade war that saw China letting its currency fall below the key 7-per-dollar level for the first time in more than a decade.
“Optimism of a resolution has drifted off into the distance as investors attempt to second-guess the next moves in the trade dispute,” London Capital Group analyst Jasper Lawler said.
Back on Wall Street, the yield on the 10-year Treasury bond fell below that on the two-year, a sign that markets foresee a recession.
Among mid-caps, Petrofac closed up 1.1%. It had earlier fallen as much as 7.9% after the oilfield services provider’s core profit and new orders dropped due to an ongoing probe into its contract dealings in Saudi Arabia and Iraq.
Small-cap tour operator Thomas Cook plummeted 16.6% after a substantial agreement on terms of a rescue package, which the company said could lead to its shares being de-listed.
Reporting by Muvija M, Shashwat Awasthi and Indranil Sarkar in Bengaluru and Josephine Mason in London; Editing by Sriraj Kalluvila, Arun Koyyur and Gareth Jones