UK stocks retreat as weak U.S. data adds to global growth fears

(Reuters) - UK stocks retreated on Tuesday, reversing gains from earlier in the day, coming under pressure following disappointing manufacturing data from the United States that added to concerns about the health of the global economy. The FTSE 100 lost 0.7% and a sub-index of banks fell more than 1%. The main index still outperformed the benchmark European bourse that was already rattled by weak factory activity data from the euro zone. The FTSE 250 ended 0.3% lower led by a steep fall in baker Greggs after a trading update. The index had risen earlier in the session when hopes rose of a Brexit solution as Prime Minister Boris Johnson prepared to present his amended proposals on the divorce deal. The losses were triggered by data showing the U.S. manufacturing sector shrinking last month to its weakest level in more than a decade as business conditions deteriorated amid the trade war with China. "Traders had gotten used to the idea that manufacturing in Europe is weak, but the disappointing U.S. ISM (Institute for Supply Management) manufacturing report sent the message home it is a worldwide problem," CMC Markets analyst David Madden said.

Asia-facing financials HSBC and Standard Chartered, which were already lower on the day as the Hong Kong protests intensified, extended losses after the disappointing U.S. data.

AstraZeneca also weighed on UK's main index with a near 2% drop after the U.S. Food and Drug Administration declined to approve the company's combination therapy to treat smoker's lung. Piling on worries about global growth, the World Trade Organisation earlier in the day cut its growth forecast for global trade this year by more than half, adding that an escalation in trade tensions, a slowing global economy and a disorderly Brexit could squeeze growth even more. The stock markets' shaky start to October comes ahead of the resumption in Sino-U.S. trade talks next week, when the world's two biggest economies will try to resolve their conflicts.

The trade spat has so far roiled financial markets this year, causing the FTSE 100 to suffer its biggest monthly drop in 2019 in August when tensions flared up. Among a handful of gainers was Ferguson, which rose more than 4% in its best day since June after the plumbing parts distributor posted a better-than-expected rise in earnings thanks to cost-cutting moves. Fund supermarket Hargreaves Lansdown dropped 3.5% as Credit Suisse initiated rating on the stock with an "underperform". Mid-cap Greggs slumped nearly 12% after the takeaway food group reported a slowdown in sales growth, while Integrafin slipped 4.8% after its co-founder trimmed his stake.

(Reporting by Muvija M and Shashwat Awasthi in Bengaluru; Editing by Bernard Orr and Jane Merriman)

By Yadarisa Shabong and Muvija M