* FTSE 100 down 0.4 pct
* BoE keeps rates on hold
* Morrisons drops despite strong update
* RBS gains on special div prospect(Adds details, closing prices)
By Danilo Masoni
MILAN, Sept 13 (Reuters) - The UK's top share index wasweighed down on Thursday by a stronger pound, while retailersfell as a strong update from supermarket group Morrisonsfailed to dispel competition worries.
The FTSE 100 fell 0.4 percent, as a pull-back in oiland tobacco stocks, which had pushed up the index in theprevious session, outweighed gains in banks and materials.
Sterling rose after a media report said that Britain and theEuropean Union had made progress on the Irish border question, amajor hurdle to agreeing a Brexit deal.
The currency was also supported by the Bank of Englandraising its forecast for third-quarter GDP growth following awidely expected decision to keep rates on hold.
Currency strength weighed on shares in big internationalexporters, which are heavily represented on the index.
Morrisons fell 2.1 percent despite its first-half profitgrowth beating forecasts and a quarterly sales performance thatwas its best in nine years.
Some analysts were concerned about pressure from low-costcompetitors, arguing the strong update was a one-off.
"The question now is where can Morrisons go from here? Thereremains some intense pressure from discounters, whilst Tesco haslately announced its own discount chain aimed at countering theGerman upstarts. Further pressure on margins seems inevitable,"said Neil Wilson, analyst at Markets.com.
Other retailers were also under pressure on a negativeread-across from poor results from the country's biggestdepartment store group John Lewis, whose profit was wiped out inthe first half as it was forced to match discounting by itsstruggling rivals on a fiercely competitive high street.
Small cap Debenhams fell 9.1 percent after SportsDirect ruled out a bid for the department storeoperator.
Banks, whose lending business benefits from rising interestrates, provided some support to the FTSE.
Shares in Royal Bank of Scotland rose 1.1 percent asits chairman was reported as saying the lender could pay aspecial dividend. HSBC also rose andBarclays was flat.
Following the BoE meeting, analysts at Rabobank said theystuck to their view that May 2019 was "the first realisticopportunity" for the central bank to raise rates.
Miners were also in demand as copper prices rallied after aU.S. official said Washington had invited Beijing to restarttalks aimed at resolving their trade dispute.(Reporting by Danilo Masoni; editing by John Stonestreet andToby Davis)
