British shares slip as Middle East concerns overshadow trade

(Reuters) - Britain's FTSE 100 .FTSE closed 0.6% lower on Monday with financial stocks leading the losses on concerns over tensions in the Middle East, although oil-fuelled gains for Shell RDSa.L and BP BP.L provided some support.

FILE PHOTO: People check their mobile phones as they stand outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

And the FTSE 250 .FTMC fell 1% after President Donald Trump threatened sanctions against Iraq and retaliation against Iran if it responded with force to last week's U.S. air strike.

Apart from energy-related shares .FTNMX0530, which were lifted by oil price gains, all others closed lower.

U.S.-Iran tensions have dampened initial hopes of a sustained rally in global equities on the back of an imminent Phase 1 U.S.-China trade deal.

“A severe escalation of tensions in the Middle East - or even outright hostilities - has the potential to easily subsume any benefits gained from the interim U.S.-China trade agreement,” OANDA analyst Jeffrey Halley said.

Although BP and Shell had helped the FTSE 100 make gains on Friday, while other markets fell after the air strike, their weighting was not enough to stop the index falling.

“With so much cash heavily invested in global recovery trade in the elusive search for yield, a downward correction in asset prices could be aggressive,” Halley said.

An index of airlines .FTNMX5750 recorded its worst two-day fall since early December, as higher oil prices raised concerns about a potential impact on their margins.

Morrisons MRW.L and Sainsbury's SBRY.L fell 3.3% and 1.1%, respectively, after Bank of America said retailers faced structural challenges, including market share losses to discounters such as Aldi UK, which reported higher sales, and profit dilution due to e-commerce.

Britain’s major supermarkets are forecast to report lacklustre Christmas sales this week, reflecting weak economic growth and comparisons with generally solid festive results in 2018.

NMC Health NMC.L, whose stock tanked 30% last month after criticism from short-seller Muddy Waters, skidded another 4.5% to the bottom of the main index.

Hikma HIK.L followed with a 4% slide after a rating downgrade by JP Morgan.

Reporting by Shashwat Awasthi and Muvija M in Bengaluru; Editing by Arun Koyyur and Alexander Smith