FTSE 100 set for worst week this year amid tariff whiplash

March 7 (Reuters) - UK shares dropped on Friday, with both the blue-chip and midcap indexes set for weekly declines, as growing uncertainty around U.S. trade policy kept investors cautious on equities.

The blue-chip FTSE 100 .FTSE dropped 0.6% at 1040 GMT, with the index's export-oriented companies pressured by gains in the pound GBP=D3. The domestically focussed FTSE 250 .FTMC fell 0.9%.

The FTSE 100 was on track to decline 2% for the week, its worst since December, while the midcap index was set to drop for a third straight week.

U.S. President Donald Trump on Thursday suspended tariffs on Canada and Mexico, which he had imposed earlier in the week, but the move failed to cheer investors.

Burberry BRBY.L tumbled 6.3%, dragging the personal goods sector .FTNMX402040 down 5.1%, as worries about the economic impact of tariffs weighed on Europe's luxury stocks.

Meanwhile, a bond selloff sparked by Germany's plan for a massive shift to higher spending eased on the day, but the UK's 10-year government bond yield GB10YT=RR was still trading at its highest in over one month.

Most sectors were in the red, but the oil and gas sector .FTNMX601010 gained 0.3% as crude prices rose on the day. O/R

Among other individual movers, insurer Just Group JUSTJ.L slumped 14.6% after missing estimates for pre-tax profit and tangible net asset value.

Schroders SDR.L fell 5%, reversing some of Thursday's 12.6% gains, as the British money manager unveiled plans for cost reductions.

Though 0.4% lower on the day, the aerospace and defence sector .FTNMX502010 was set for weekly gains of over 9%, on expectations for higher European defence spending.

House prices in Britain unexpectedly fell 0.1% in February, data from mortgage lender Halifax showed.

Investors awaited a key U.S. jobs report and a speech from Federal Reserve Chair Jerome Powell for more insights into the economic and monetary policy outlook of the world's biggest economy.

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