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* FTSE 100 down 0.2 percent
* Pound surges on possible financial services Brexit deal
* BT jumps 10 percent on "stellar" earnings
* Oil prices drag
By Julien Ponthus
LONDON, Nov 1 (Reuters) - UK shares underperformed theirEuropean peers on Thursday despite upbeat trading updates fromBT and Smith & Nephew as optimistic news on Brexit led to asurge in the pound which acts as an accounting drag on bluechips' foreign revenues.
London's FTSE 100 was down 0.2 percent at 0951 GMT,with sterling up 1.1 percent, its fourth highest rise in thelast 12 months after reports a deal giving London-basedfinancial services access to European Union markets after Brexitwas nearly done.
Another drag to the British benchmark was oil prices fallingand pushing index heavyweights BP and Royal Dutch Shelldown by 2.4 percent and 2.3 percent respectively.
The latter reported soaring but below consensus profits inthe third quarter.
"The FTSE was forced to give back some of its Halloweenrally," said Connor Campbell, an analyst at Spreadex, referringto the previous session's gains.
Data showing that British factories suffered their worstmonth since just after 2016's Brexit vote in October did littleto lift morale.
Among Thursday's fresh batch of third quarter earnings alsocame encouraging news for equity investors. Broker Bernsteincalled BT's figures "stellar".
BT's outgoing boss said the group's recovery plan wasdelivering after more sales of high-end smartphones and costsavings across the business helped the telecoms company achievehigher-than-expected first half earnings.
"Overall the results are solid with steady improvements inthe underlying trends", Citi analysts also commented.
Another clear winner of the early session was medicalequipment maker Smith & Nephew which jumped 7 percentafter saying it expects its trading profit margin to be higherthis year than last on better performance for its hips.
"This is a particularly strong performance in hips,suggesting the company is taking share," analysts at Investecwrote.
Miner BHP Billiton rose 2.5 percent after it said itwould buy back shares and pay a special dividend to return $10.4billion to shareholders, sticking to a promise to hand back allof the proceeds from the sale of its U.S. shale business.
Just Eat was also among the top performers, rising3.8 percent with better-than-expected orders and expectationsthat 2018 revenues will be towards the top end of its 740million pound ($952 million) to 770 million pound range.(Julien PonthusEditing by Peter Graff)
BP (BP.)