UPDATE 1-FTSE retreats as more drama hits UK retail

* FTSE 100 down 0.3 pct, hits new 15-month low

* Moss Bros sinks 23 pct after profit warning

* Kingfisher bottom of FTSE 100

* FTSE 350 Retailers index lowest since Brexit

* Hammerson rises 5 pct in afternoon trading(Updates prices, adds details)

By Tom Pfeiffer and Helen Reid

LONDON, March 21 (Reuters) - British shares fell to a new15-month low on Wednesday as Kingfisher and Moss Brospiled more bad news on a UK retail industry reelingfrom the surge in e-commerce.

Share declines accelerated after data showed Britishworkers' pay had risen at the fastest pace in nearly two and ahalf years. That pushed up the value of the pound and hit sharesin big multinationals and exporters.

Any end to the sustained squeeze on UK household incomes wasnot showing through in the retail industry on Wednesday,however.

Formal clothing chain Moss Bros lost nearly a quarter of itsmarket value after a profit warning it blamed on supply chainproblems and fewer customers in its stores. Home improvementchain Kingfisher also reported a recent deterioration intrading.

The FTSE 100 index ended the day down 0.3 percent,with Kingfisher falling 10.7 percent to its lowest level sinceNovember. Among other retailers, clothing chain Next wasdown 1.2 percent and Primark owner ABF fell 1.1 percent.

After holding steady in January and February, UK retailershares have tumbled 9 percent this month, outpacinga 3 percent drop in the wider FTSE 350 index. The retailindex is at its lowest since the aftermath of the Brexit vote.

Underscoring the increasing power of online retail, U.S.ecommerce giant Amazon overtook Google owner Alphabetby market value on Tuesday.

Despite the myriad problems facing UK retail, some investorsare still venturing into some of the sector's riskiest stocks.

Multinationals such as British American Tobacco,Diageo and Unilever weighed on the FTSE as thepound rose nearly half a percent against the dollar followingthe wage growth numbers.

Morgan Stanley strategists had been forecasting strong datathat would pave the way for the Bank of England to deliver ahawkish statement when it meets on Thursday.

"It has been well established that a number of Bank ofEngland officials are expecting wages to start outstrippingheadline inflation in the coming months, and a strong averageearnings number today could well reinforce that narrative, andraise expectations of a move on rates in May, irrespective ofyesterday’s softening in headline CPI," said Michael Hewson,Chief Market Analyst at CMC Markets UK.

Investors were also awaiting the conclusion of a U.S.Federal Reserve meeting for signals on the pace of expectedinterest rate rises.

Real estate investment trust Hammerson, which wasthrown into the spotlight on Monday when it rebuffed a takeoverbid from France's Klepierre, rose sharply in afternoontrading, finishing up 5.2 percent.

Shares in Hammerson takeover target Intu Propertiestumbled 4.3 percent at the same time.

Traders said merger arbitrage funds were unwinding theirpositions due to Klepierre's approach. They were previously longIntu and short Hammerson to play the deal's arbitrage spread,but the bid from Klepierre threw doubt on the acquisition.

Unwinding shorts on Hammerson likely pushed the shares up.(Reporting by Tom Pfeiffer and Helen Reid, Editing by TobyDavis)