The FTSE 100 <.FTSE> closed down 1.3 percent, a decline limited by a rally in precious metal miners shares as safe-haven gold hit a two-year peak. The more domestically focused mid-cap FTSE 250 index <.FTMC> finished 0.4 percent lower.

After moving largely in lock step with each other in the run-up to the EU referendum, UK mid-caps have diverged sharply since the Brexit vote on June 23.

The FTSE 250, which is skewed towards UK-focused banks and property stocks, has borne the brunt of investor worries, while blue-chips, whose earnings get a boost from weaker sterling, have outperformed in local currency terms. http://reut.rs/29jKbO4

Despite a sharp sell-off after the Brexit vote, the FTSE 100 index is still up about 2 percent since its close on June 23. In contrast, the mid-cap index has fallen more than 10 percent since then in sterling terms.

"The FTSE 100 is doing its best to keep the post-Brexit (vote) recovery alive in spite of the understandable uncertainty that has arisen following the referendum," Accendo Markets' head of research, Mike van Dulken, said. "Defensives and safe havens have certainly lived up to their name."

However, the FTSE 100 index is down about 11 percent in dollar terms as the slump in sterling to a 31-year low has reduced the dollar value of the market.

Oil and gas shares weakened on Wednesday with the sector index <.FTNMX0530> off 1.1 percent as oil prices fell on worries over demand. Mid-cap Tullow Oil (>> Tullow Oil plc) slumped 12.3 percent.

Property firms, banks and retailers continued their slide with Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) slipping more than 6 percent to its lowest level since January 2009.

Retailers eased after HSBC raised the prospect of deepening price wars as supermarkets try to retain customers. Tesco (>> Tesco PLC) and Morrisons (>> WM Morrison Supermarkets PLC) fell 8.1 percent and 7.2 percent respectively and were the two weakest FTSE 100 performers.

"We expect that Tesco has lost a lot of its buying power and position over recent years due to mismanagement," HSBC analysts said in a note to clients. "We downgrade (it) to 'hold' from 'buy' as short-term sentiment would be against the sector."

Property-related companies came under further selling pressure as shares in Barratt Development (>> Barratt Developments Plc) and Taylor Wimpey (>> Taylor Wimpey plc) fell more than 4 percent on lingering concerns about the sector's growth outlook.

Goldman Sachs, Barclays and Credit Suisse are among major banks forecasting a recession in the UK in the second half of 2016 or early 2017 with firms holding off on hiring and lower capital spending major factors.

Six firms have suspended dealings in their UK property funds this week after heavy redemptions from retail investors, underscoring concerns over demand for office space and retail property in the country.

Shares in mid-cap companies Redrow (>> Redrow plc), Bovis Homes (>> Bovis Homes Group plc) and Zoopla Property (>> Zoopla Property Group PLC) fell 1.8 to 5.6 percent. Domestic banks Shawbrook (>> Shawbrook Group PLC) and Metro Bank (>> Metro Bank PLC) fell 4.7 percent and 3.1 percent respectively due to Brexit concerns.

(Editing by Louise Ireland)

By Atul Prakash