UPDATE 2-UK stocks rally as Brexit deal hopes grow; mid-caps soar 2%

* FTSE 100 up 0.3%, FTSE 250 up 1.9%

* Brexit deal hopes lift sterling, housebuilders, banks

* Sino-U.S. talks also support wider sentiment

* WPP, Burberry fall after European rivals cut forecast

* Dart Group climbs higher after hiking profit view
(Adds news items, analyst comments, updates share prices)

By Shashwat Awasthi and Muvija M

Oct 11 (Reuters) - Britain's mid-cap index surged nearly 2%
on Friday as hopes grew that a Brexit deal may be clinched by
the end of the month, while a rally in blue-chip financial
stocks and housebuilders helped the FTSE 100 reverse earlier
losses.

The FTSE 250 jumped 1.9% and was on course for its
best day since January by 0953 GMT. The Dublin bourse,
often considered a barometer of Brexit sentiment, surged 2.1% to
its highest since July.

The JP Morgan index that follows UK-listed companies making
their money at home soared 4.6% and was on track for
its best day since the basket was created nearly three years
ago.

After nearly three years of chaotic negotiations, signs that
a divorce deal could finally be nailed down were enough to push
London-listed companies with exposure to the domestic economy to
a premium over the FTSE 100 for the first time since
May.

The exporter-heavy FTSE 100 lagged the domestically-focussed
mid-caps and missed out on a trade sentiment-induced rally in
global stocks as sterling firmed after Ireland sounded optimism
on the chances of Britain leaving the European Union in an
orderly fashion.

But the index still managed to overcome earlier losses and
edge 0.3% higher, led by homebuilders Persimmon, Barratt
, Berkeley and Taylor Wimpey that jumped
between 5.6%-7.1%.

Financial stocks were also boosted by Brexit optimism, with
RBS up 8%, its biggest one-day rise in more than five
years, and Lloyds surged 7% to track its best day since
June 2016.

However, CMC Markets analyst Michael Hewson cautioned that
optimism "needs to be tempered" and warned that the upbeat
sentiment could be short-lived, "with any progress likely to be
as elusive as the pot of gold at the end of the rainbow".

"This pathway to a deal could well be a road to nowhere,"
Hewson said.

"UPLIFTING"

The broader sentiment was upbeat after U.S. President Donald
Trump stirred hopes of a trade agreement with China, calling the
first day of talks "very good".

"We're enjoying a much more uplifting end to the week as
traders see cause for optimism in the two painful negotiations
that have gripped markets in recent years," Oanda analyst Craig
Erlam said.

The FTSE had confirmed a "Death Cross" pattern in the
previous session as its 50-day moving average (DMA) crossed
below the 200 DMA, a technical pattern usually seen as a warning
that more losses are likely in the near term.

A notable blemish on the main index was a 4.2% drop in ad
firm WPP after French rival Publicis cut its
sales view for the second time.

Luxury brand Burberry, which advanced in the
previous session on a positive read-across from LVMH,
slipped 3.4% after German rival Hugo Boss cut its
annual forecast.

AIM-listed Dart Group surged 15% after the owner of
British airline and tour operator Jet2 raised its annual profit
view and said it had seen stronger demand for some products
since Thomas Cook collapsed.
(Reporting by Shashwat Awasthi and Muvija M in Bengaluru;
Editing by Bernard Orr and Gareth Jones)