UK stocks bounce back after PM backs finance minister

• FTSE 100 rises 0.4%, FTSE 250 adds 0.7%
• Watches of Switzerland slumps after margin hit warning
• Currys up after beating profit expectations
• UK services sector expands at fastest pace since August

July 3(Reuters) - The UK's main stock indexes rose on Thursday in broad-based gains after British Prime Minister Keir Starmer's office gave finance minister Rachel Reeves his full backing, easing concerns over her future.

The blue-chip FTSE 100 .FTSE and the midcap index .FTMC had closed in the red on Wednesday after Reeves' tearful appearance in parliament following a series of U-turns on welfare reforms that blew a hole in her budget plans.

Britain's bond markets also steadied after debt worries led to a selloff in the previous session.

The blue-chip FTSE 100 .FTSE was up 0.4% by 1000 GMT, while the midcap index .FTMC gained 0.7%.

The government managed to pass its welfare reform bill on Tuesday but had to remove long-term cost saving measures, resulting in concerns that balancing the public finances will require raising taxes or cutting spending elsewhere.

"Some worries remain about the government being backed into a corner and losing its grip on public finances," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"Investors may still be on alert to fresh opposition to government plans to trim spending, to try and abide by its fiscal rules and keep bond markets onside."

Chemical stocks .FTNMX552010 led sectoral gains, rising 1.9%. Croda CRDA.L and Elementis ELM.L were both up over 2%.

Among individual stocks, luxury retailer Watches of Switzerland WOSG.L fell 8.3% and was among the top midcap decliners after warning of a margin hit due to tariff pressures.

Electricals retailer Currys CURY.L added 7.7% after beating market expectations for annual adjusted pre-tax profit.

Data from the S&P UK services PMI showed that the British services sector activity expanded at the fastest rate in almost a year, while the prices charged rose at the slowest pace in nearly four years.

The Bank of England is closely assessing service sector prices to gauge inflation pressure. Investors widely expect a rate cut in August.

Across the Atlantic, U.S. nonfarm payrolls data, due later in the day, will be monitored as a key indicator that could influence Federal Reserve rate cuts.