UPDATE 2-British shares slip as Middle East concerns overshadow trade

* FTSE 100 down 0.6%, FTSE 250 down 1%

* Airlines fall, oil stocks gain on crude prices

* Hikma slips after rating downgrade
(Updates with closing prices)

By Shashwat Awasthi and Muvija M

Jan 6 (Reuters) - Britain's FTSE 100 closed 0.6%
lower on Monday with financial stocks leading the losses on
concerns over tensions in the Middle East, although oil-fuelled
gains for Shell and BP provided some support.

And the FTSE 250 fell 1% after President Donald
Trump threatened sanctions against Iraq and retaliation against
Iran if it responded with force to last week's U.S. air strike.

Apart from energy-related shares, which were
lifted by oil price gains, all others closed lower.

U.S.-Iran tensions have dampened initial hopes of a
sustained rally in global equities on the back of an imminent
Phase 1 U.S.-China trade deal.

"A severe escalation of tensions in the Middle East - or
even outright hostilities - has the potential to easily subsume
any benefits gained from the interim U.S.-China trade
agreement," OANDA analyst Jeffrey Halley said.

Although BP and Shell had helped the FTSE 100 make gains on
Friday, while other markets fell after the air strike, their
weighting was not enough to stop the index falling.

"With so much cash heavily invested in global recovery trade
in the elusive search for yield, a downward correction in asset
prices could be aggressive," Halley said.

An index of airlines recorded its worst two-day
fall since early December, as higher oil prices raised concerns
about a potential impact on their margins.

Morrisons and Sainsbury's fell 3.3% and
1.1%, respectively, after Bank of America said retailers faced
structural challenges, including market share losses to
discounters such as Aldi UK, which reported higher sales, and
profit dilution due to e-commerce.

Britain's major supermarkets are forecast to report
lacklustre Christmas sales this week, reflecting weak economic
growth and comparisons with generally solid festive results in
2018.

NMC Health, whose stock tanked 30% last month after
criticism from short-seller Muddy Waters, skidded another 4.5%
to the bottom of the main index.

Hikma followed with a 4% slide after a rating
downgrade by JP Morgan.
(Reporting by Shashwat Awasthi and Muvija M in Bengaluru;
Editing by Arun Koyyur and Alexander Smith)