* FTSE 100 up 0.4%, FTSE 250 down 0.7%
* Housebuilders, airlines hit by Brexit upheaval
* BP gains after divestment plans
* Thomas Cook plunges among smallcaps(Updates with closing prices)
By Muvija M and Josephine Mason
Aug 28 (Reuters) - Britain's Brexit-sensitive domesticstocks fell on Wednesday as renewed worries about the countryleaving the European Union without a deal pressured sterling andsapped investor appetite for stocks sensitive to slowingconsumer spending.
Fresh selling kicked in after Prime Minister Boris Johnsonmoved to limit parliament's opportunity to derail his Brexitplans by cutting the amount of time it sits between now and EUexit day on Oct. 31.
The mid-cap FTSE 250 index skidded 0.7%, as worriesthat a disorderly no-deal Brexit would hurt the economy rose.Half of mid-caps' income is generated in the UK.
The index had gained in the previous session as sterlingrose after a pledge by opposition parties to try to avert ano-deal Brexit.
But the new bout of political upheaval slammed sterling onWednesday and boosted exporter-heavy FTSE 100 which wasup 0.4% and far outperforming the broader European bourse. Themajority of FTSE constituents make their revenue abroad.
The blue chips index was also propped up by gains in oilmajor BP after it announced plans to sell its Alaskanassets for $5.6 billion and supermarkets, which were lifted by apositive broker note.
But the rising possibility that Britain could quit the EUwithout an agreement kept many investors on the sidelines.
"Until we get a change in the dynamic, they're going tocontinue to underperform," said Rory McPherson, investmentdirector at Psigma Investment Management.
Housebuilders were the hardest hit. Persimmon,Berkeley, Barratt Developments and TaylorWimpey were the biggest decliners on the FTSE 100, down2.9% to 3.6%. The sector has been hit by worries that a hardBrexit will damage the British economy.
Airlines, which are sensitive to consumer spending, werealso under pressure. British Airways owner IAG was down 1.4% andeasyJet was down 2.7%.
Prudential, which has a big Asian exposure, fell1.6% to its lowest since November 2016 amid continued worriesabout damage to its business in Hong Kong due to the protests inthe former British territory.
The stock has fallen almost 30% since early July as thedemonstrations have escalated.
WORST MONTH IN YEARS
The FTSE 100 is on course for its steepest monthly fall infour years, hammered by sharp escalations in the Sino-U.S. tradewar that saw China letting its currency fall below the key7-per-dollar level for the first time in more than a decade.
"Optimism of a resolution has drifted off into the distanceas investors attempt to second-guess the next moves in the tradedispute," London Capital Group analyst Jasper Lawler said.
Back on Wall Street, the yield on the 10-year Treasury bondfell below that on the two-year, a signthat markets foresee a recession.
Among mid-caps, Petrofac closed up 1.1%. It hadearlier fallen as much as 7.9% after the oilfield servicesprovider's core profit and new orders dropped due to an ongoingprobe into its contract dealings in Saudi Arabia and Iraq.
Small-cap tour operator Thomas Cook plummeted 16.6%after a substantial agreement on terms of a rescue package,which the company said could lead to its shares being de-listed.
(Reporting by Muvija M, Shashwat Awasthi and Indranil Sarkar inBengaluru and Josephine Mason in London; Editing by SrirajKalluvila, Arun Koyyur and Gareth Jones)