Financials drag London stocks lower ahead of Fed's rate decision

By Sanchayaita Roy

Sept 16 (Reuters) - British stocks closed lower on Tuesday, led by rate-sensitive banks and insurers, as investors remained cautious ahead of the widely expected U.S. Federal Reserve interest-rate cut decision on Wednesday.

The benchmark FTSE 100 .FTSE dropped 0.9%, while the domestically focused FTSE 250 .FTMC was down 0.7%.

The U.S. central bank will kick off its two-day policy meeting later in the day, with markets pricing in a 25-basis-point interest rate cut announcement on Wednesday. If delivered, it would mark the Fed's first dovish move this year, following signs of a cooling labour market.

The pound GBP=D3 rose to its highest level since early July against the greenback, weighing on export-oriented firms.

Meanwhile, data showed on Tuesday that Britain's jobs market has lost a little more steam, potentially easing worries at the Bank of England about persistent inflation pressures.

The BoE is expected to keep interest rates on hold this week, having cut them in August.

"No such cut is expected from the BoE, despite today's lacklustre jobs report, though falling wage growth may give MPC members the wiggle room they need to deliver a cut later in the year," said Danni Hewson, head of financial analysis at AJ Bell, in a note.

"The key will be inflation, and the latest set of data isn't likely to make for comfortable reading for central bankers or households."

Life insurance .FTNMX303010 and bank .FTNMX301010 stocks led the sectoral declines, down 2.4% and 1.7%, respectively.

HSBC Holdings HSBA.L fell 1.1%, pressuring the blue-chip index.

Among other individual stocks, Haleon HLN.L fell the most in the FTSE 100, dropping 4.8% after Barclays downgraded the consumer healthcare group's rating to "equal weight" from "overweight."

Budget airline EasyJet EZJ.L fell 3.3% after JPMorgan downgraded the stock to "neutral" from "overweight" and placed it on negative catalyst watch.

Gold miner Fresnillo FRES.L was the top gainer in the FTSE 100 with a 2.1% rise, tracking higher gold prices. GOL/

Trustpilot Group TRST.L jumped nearly 15% after the global review platform reported half-year results.

Additionally, U.S. President Donald Trump is due in Britain late on Tuesday for a second state visit at which the two nations will seal deals worth more than $10 billion.

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