British stocks finish off lows as Trump holds off on Mexico tariffs

Updates with closing prices

By Pranav Kashyap

Feb 3 (Reuters) - Britain's benchmark FTSE 100 dropped on Monday following its best monthly performance in over two years as investors fretted that U.S. tariffs could fuel a global trade war.

The indexes, however, finished well off their lows after U.S. President Donald Trump paused new tariffs on Mexico for one month, hours before sweeping levies on Mexico, China and Canada were set to take effect.

The FTSE 100 .FTSE was down 1.1%, after closing January with a 6.1% gain.

The domestically-focussed mid-cap FTSE 250 .FTMC lost 1.1% on the day.

British stocks joined a global selloff sparked by fears that Trump's tariffs on Canada, Mexico and China mark an opening salvo in a trade war that could curb economic growth internationally. MKTS/GLOB

However, Trump said that although Britain was "out of line" when it came to trade he thought it may be able to avoid tariffs and said they would "definitely happen" with the European Union.

Europe's benchmark STOXX 600 .STOXX was down 0.9%, while the S&P 500 .SPX slipped over 0.6%. .EU.N

Most FTSE 250 sub-sectors fell with tariff-sensitive sectors such as automobiles .FTNMX401010 down 2.4% and consumer-focussed sectors, including beverages .FTNMX451010 sliding 1.8%.

Safe-haven assets were in demand, with yields on European DE10YT=RR and gilts GB10YT=RR falling. EUR/GVD

On the economic front, British factories reported another tough month in January as output, new orders and employment all fell, PMI data showed.

The Bank of England meets on Thursday and is expected to cut interest rates by 25 basis points.

Investors added to bets on BoE rate cuts, pricing in 81 basis points of reductions by the end of the year, compared with 75 bps - which represented a full pricing of three quarter-point rate cuts - on Friday.

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