* FTSE 100 down 0.2 percent
* Pound surges on possible financial services Brexit deal
* BT has best day since May 2013 as outgoing CEO hailsrecoveryplan
* Oil prices drag(Add details, updates prices)
By Julien Ponthus
LONDON, Nov 1 (Reuters) - UK shares fell on Thursday,snapping three days of gains, even after strong trading updatesfrom BT 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 ended down 0.5 percent,underperforming its European peers as sterling jumped 1.4percent for it biggest one-day rise since January after reportsthat a deal is nearly done to give London-based financialservices access to European Union markets after Brexit.
The currency was also briefly boosted after the Bank ofEngland held interest rates unchanged as expected but hinted atslightly faster future rises if Brexit goes smoothly.
Another major drag to the British benchmark was falling oilprices and pushing index heavyweights BP and Royal DutchShell down by 4.4 percent for its biggest one day fallin two years 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".
Shares shot up 9 percent to top the FTSE 100 for their bestday since May 2013.
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.
"It's early days, but this could be the sign of tractionthat investors have been waiting for," said Alasdair McKinnon,fund manager of the Scottish Investment Trust, which owns sharesin the broadband and telecom company.
Another clear winner, staging its best day in nearly fouryears, was medical equipment maker Smith & Nephew whichjumped 6.4 percent after saying it expects its trading profitmargin to be higher this year than last on better performancefor its hips.
"This is a particularly strong performance in hips,suggesting the company is taking share," analysts at Investecwrote.
Miner BHP Billiton rose 2.6 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 rewarded for serving upbetter-than-expected orders and expectations that 2018 revenueswill be towards the top end of its 740 million pound ($952million) to 770 million pound range. Its sharesjumped 6.3 percent, their biggest daily gain for a year.
The more domestically focused FTSE 250 benefited from thestronger pound, rising 1.2 percent to a three-week high, led bySpire Health, up 12.4 percent and Just Groupwhich jumped 11.5 percent.(Reporting by Julien Ponthus; additional reporting by JosephineMason and Helen Reid;Editing by Matthew Mpoke Bigg)
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