FTSE 100 sinks as sterling gains on Brexit relief

London's FTSE 100 retreated from multi-month highs as the pound gained, weakening exporter stocks, and poor euro zone economic data pulled the index deeper into the red.

The FTSE 100 dipped 0.8 percent and was on course for its worst day in a month by 0947 GMT. The more domestically exposed FTSE 250 slipped 0.7 percent.

Sterling strengthened after European Union leaders gave Prime Minister Theresa May two more weeks, until April 12, to decide how to leave the European Union.

"It's clear the EU for now doesn't want to be seen to force Britain out, but its patience won't last forever," Markets.com analyst Neil Wilson said.

Weighing on the main index were drug maker AstraZeneca , which hit a high in the last session on the pound's weakness, British American Tobacco and Diageo, the world's largest spirits company.

Making matters worse, data showed that businesses across the euro zone performed worse than expected in March as factory activity contracted at the fastest pace in nearly six years, hurt by a drop in demand.

Another survey showed that German manufacturing contracted further this month, adding to fears that unresolved trade disputes are exacerbating a slowdown in Germany.

CMC Markets analyst Michael Hewson said there would probably be a lot more concern about a global manufacturing recession following the downbeat German data, which he called unexpected.

The worry led to losses across the board on FTSE 100 with financials the worst hit. Oil majors Shell and BP also dragged as crude prices slipped.

Housebuilders, which tend to be most exposed to any economic hit, handed back early gains to be down 0.8 percent.

Engineering company Smiths Group, however, rose 1.7 percent after announcing plans to separate its struggling healthcare unit and list it in the UK.

"Questions will likely remain over the absolute quality of Smiths, but we believe a better Smiths is emerging and that Smiths can get better still," Jefferies analysts wrote.

Among midcaps, Aggreko, the world's largest temporary power provider, rose 3 percent as brokerage Stifel upgraded the stock.

Struggling department store group Debenhams dropped over 60 percent after saying some restructuring options it was considering would result in no equity value for its shareholders.