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Trade war hopes buoy FTSE, still slave to sterling swings

FILE PHOTO: A trader monitors his screen on a trading floor in London January 22, 2010. REUTERS/Stefan Wermuth

By Helen Reid

LONDON (Reuters) - Britain's top share index extended its rally on Wednesday to hit a near two-week high as investors focussed on hopes a U.S.-China trade war was losing intensity.

Brexit developments also kept the FTSE 100 in the thrall of currency moves on Wednesday, with inflation figures also driving swings in the index whose constituents derive most of their earnings from abroad.

An unexpected jump in UK inflation boosted sterling in the morning, sending the FTSE 100 into the red.

But later a report that Prime Minister May disagreed with an EU offer on the Irish border, and criticism from European Council President Donald Tusk of Britain's Brexit plan, drove sterling down and boosted the FTSE.

The FTSE 100 (.FTSE) ended the day up 0.4 percent, driven up by mining and banking stocks as well as the positive currency translation.

UBS analysts said the direction of UK stocks in "soft" or "hard" Brexit scenarios would be largely determined by the reaction of the currency.

On the day, hopes a U.S.-China trade war is reaching its endgame helped support risk appetite not only in Britain but across Europe.

Washington on Tuesday imposing further 10 percent tariffs on $200 billion of Chinese imports and Beijing retaliated.

"China are out of bullets, they've taxed all U.S. imports, depreciated the currency, and it doesn't seem anyone else has jumped on the bandwagon to criticise the latest tariffs," said Christopher Peel, chief investment officer at Tavistock Wealth.

"Their economy is export-led, they can't afford for it to go out of control. The U.S. can afford to let it get out of control. Trump has won this hook line and sinker," he added, pointing to the big slide in China's stock markets compared to the United States.

Mining companies helped support the FTSE 100 as copper prices climbed on the less harsh than expected U.S.-China trade tariffs.

Anglo American (AAL.L), Antofagasta (ANTO.L), Fresnillo (FRES.L), and Glencore (GLEN.L) were the top gainers, up 3.5 to 5.9 percent.

The biggest FTSE 100 faller was Kingfisher (KGF.L), down 6.3 percent after the home improvement retailer reported a 15 percent fall in half-year profits due to poor performance in France, where it owns the Castorama and Brico Depot brands.

"Kingfisher's end-markets have been mostly very unhelpful at a time when management is attempting to implement major strategic and structural change," wrote Davy Research analysts.

(Reporting by Helen Reid; Editing by Angus MacSwan Heavens)