FTSE 100 retreats as sterling rallies on report of possible Brexit delay

British blue-chip shares retreated on Friday, pushed lower as sterling rallied following a newspaper report citing cabinet ministers saying Britain would have to delay its exit from the European Union.

The report in the Evening Standard pushed sterling up against the dollar and euro, dragging the exporter-heavy FTSE 100 off earlier highs and down 0.2 percent at 1229 GMT. But the currency fell back after a spokeswoman for British Prime Minister Theresa May ruling out any delay.

Companies which earn mainly in U.S. dollars are hit by a stronger pound and were the biggest drag on the index. AstraZeneca fell nearly 2 percent, while HSBC and GlaxoSmithKline also fell.

The Evening Standard cited unnamed cabinet ministers as saying Brexit looks increasingly likely to be delayed beyond March 29 because of the backlog of legislation that needs to be passed.

Stocks had been boosted earlier by reassurance from U.S. Federal Reserve chairman Jerome Powell on the pace of further rate hikes, and progress in U.S.-China trade talks.

Mid-caps, which make up half of their income at home, were up 0.5 percent at their highest in over a month, and on course to end the first full trading week of 2019 with their biggest gains since November.

British homebuilder shares, among the most sensitive to Brexit news, extended earlier gains to trade up 2.1 percent after the Evening Standard report.

Bank of America Merrill Lynch upgraded the UK housebuilding sector to neutral on Friday, boosting a sector already helped by a solid update from Britain's third-largest housebuilder Taylor Wimpey earlier in the week.

Taylor Wimpey jumped 5.2 percent to lead FTSE 100 gainers, with Persimmon and Barratt Developments  up 4.5 and 3 percent.

"It seems at least possible, or even probable, that some sort of Brexit resolution is within sight and therefore the UK House Building sector may see some relief," BAML analysts wrote.

Adding to worries at home, however, official data showed that Britain's economic growth hit a six-month low in the three months to November as factories suffered from tough global trade conditions ahead of Brexit.

Airline Flybe plummeted as much as 90 percent to a record low of 1.7 pence after a heavily discounted 1 pence-per-share buyout offer from a consortium of Virgin Atlantic Ltd, Stobart and Cyrus. Shares were down 79 percent by 1256 GMT.

Stobart jumped 5.6 percent to top mid-cap winners after the news.

Retailers continued to upset the markets.

AIM-listed fast-fashion retailer Quiz tanked 29 percent to a record low after a revenue warning following disappointing Christmas sales.

Suit retailer Moss Bros also said the period ahead would be "extremely challenging", but its shares climbed 2.7 percent as analysts took comfort from the company's strong e-commerce sales.

Some respite was offered by online electricals retailer AO World which rose 3.2 percent after its Christmas quarter sales topped Jefferies' estimates thanks to what the brokerage called "well-planned Black Friday promotions".

UDG Healthcare slumped 6 percent to be the biggest mid-cap faller after Jefferies downgraded the stock and said the healthcare services provider's preliminary expectation for the year "does not sound attractive".