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* FTSE 100 down 0.6 pct
* Sterling surge dents demand for blue chips
* Mid caps rally in biggest outperformance since 2009
* Mining stocks among biggest fallers (Live coverage of European markets now available on cpurl://apps.cp./cms/?pageId=livemarkets)
By Alistair Smout and Kit Rees
LONDON, Nov 3 (Reuters) - Britain's top share index fell onThursday but mid-caps rose after the British government lost acourt case on how to trigger the Brexit process and the Bank ofEngland shifted away from cutting rates further, both sendingsterling higher.
The blue chip FTSE 100 index was down 0.6 percent at6,807.10 points by 1324 GMT, lagging the broader European marketwhich was broadly positive. The mid-cap FTSE 250 rose1.5 percent.
That divergence saw mid caps outstrip blue chips by thegreatest margin since April 2009.
The FTSE 100 fell and mid caps rose after England's HighCourt ruled that Britain's government requires parliament'sapproval to trigger the UK's exit from the European Union.
The FTSE 100 has high international exposure, with manyfirms earning dollars and reporting profits in pounds. That cancause shares to fall when the pound rises.
The mid caps, which are domestically focussed, rallied alongwith the pound on hopes that any exit from the European Unionwould be made smoother by additional scrutiny from parliament.
"This decision has increased the uncertainty around the UK'sdecision to leave the EU... The FTSE 100 is lower, but this islargely a result of global equity weakness and the FTSE's inverse correlation with the pound," Kathleen Brooks, Head ofResearch at City Index, said in a note.
"For the UK, uncertainty is good, because the market hasconvinced itself that Brexit is bad news for the UK's futureeconomic prospects."
Sterling then hit a 4-week high after the Bank of Englandscrapped plans to cut interest rates and said they could move ineither direction as it ramped up its forecasts for growth andinflation in 2017.
The FTSE 100 has rallied 7.6 percent since the UK voted toleave the European Union in June, driven by gains among itsinternational, dollar-earning firms that were boosted by a dropin sterling.
Mining companies were the biggest fallers, with gold minerRandgold Resources dropping nearly 8 percent after itsupdate and pulling peer Fresnillo down 5 percent.
In contrast, big domestic earnings were among the toprisers, with Royal Bank of Scotland up 5 percent.
British supermarket stocks were in demand, with Morrison up around 2 percent after a well-received update inwhich it reported a fourth consecutive quarter of underlyingsales growth. Peer Sainsbury also rose, up 2.1 percent.
"Now things are starting to pick up, we're entering holidayseason. I think (Morrison's) have had a tough time along with alot scare over Brexit ... I think a lot of people will be buyinginto these ahead of Christmas," John Moore, trader at BerkeleyCapital, said.
(Editing by Keith Weir)
