UPDATE 2-UK shares succumb to Brexit fears; LSE drops as Hong Kong nixes bid

* FTSE 100 down 0.8%, FTSE 250 down 1.1%

* No-deal Brexit concerns hit domestic shares

* LSE biggest blue-chip loser after HKEX cancels bid

* Recruiting firms slump after weak trading updates
(Adds company news items, updates share moves)

By Muvija M and Shashwat Awasthi

Oct 8 (Reuters) - UK-focused stocks from Tesco to
housebuilders sank on Tuesday as worries over a no-deal Brexit
peaked after a Downing Street source said a divorce deal was
essentially impossible, while LSE dropped after the Hong Kong
bourse dropped its takeover bid.

The FTSE 250 index, whose constituents make half
their earnings from the UK, stumbled to its lowest in more than
a month and ended 1.1% lower.

The blue-chip index, also vulnerable to hits from a
deterioration in the global trade scenario, dropped 0.8% ahead
of the much-anticipated resumption of U.S.-China negotiations
this week.

At home, Brexit took centre stage again amid fears that any
potential agreement between Britain and the European Union was
dead in the water as both parties positioned themselves to avoid
blame for another extension or a chaotic no-deal Brexit.

Those fears translated into a sell-off in shares of
companies perceived to be most exposed to a fallout from Brexit.

An index of retailers slipped 2.5% on its worst
day in over four months, with Tesco falling 3%, and homebuilders
losing 1.3%.

"We are now heading towards the Revoke versus No Deal
showdown," Markets.com analyst Neil Wilson said.

Aside from Brexit, the Sino-U.S. trade talks, scheduled for
Oct. 9 and 10, could also make or break stock market performance
this week.

However, mixed signals from Washington, which expanded its
trade blacklist of Chinese companies, have done little to settle
investor nerves in the run up to the meetings.

Market participants are still licking their wounds after a
sell-off in global markets that had pushed the FTSE 100 to its
worst week in a year as growth worries and recession risks
peaked.

Ahead of the talks, corporate news also drove some market
moves.

LSE fell 5.8% after Hong Kong Exchanges and Clearing
scrapped its unsolicited $39 billion offer, leading
shares of the UK bourse operator to levels not seen since last
month when HKEX first announced the takeover plans.

The stock also suffered its steepest one-day decline since
the 2016 Brexit referendum.

Recruiters PageGroup and Robert Walters
dropped 12% and 6%, respectively, after they revealed that a
host of macroeconomic troubles including the U.S.-China trade
war, Hong Kong protests and Brexit is hindering performance.

Rivals Hays, SThree and Staffline
skidded between 2.6%-7.3% as a result.

EasyJet was the biggest drag on the index with a
7.5% slide, despite a robust outlook for the current year as the
carrier said it expected capacity growth in 2020 at the lower
end of its historic range.

British Airways owner IAG also lost nearly 2%,
while smaller player Ryanair gave up 1.5%.

(Reporting by Muvija M and Shashwat Awasthi in Bengaluru,
additional reporting by Tanishaa Nadkar; Editing by Bernard Orr
and Alexandra Hudson)