By Shashwat Awasthi and Muvija M
(Reuters) - UK stocks stumbled on Tuesday after the Supreme Court ruled that British Prime Minister Boris Johnson's decision to shut down parliament in the run-up to Brexit was unlawful.
The ruling, a major setback to Johnson who has promised to deliver Brexit on Oct. 31 with or without a divorce deal with the European Union, led the main index (FTSE) to close 0.5% lower, lagging European markets.
"Whilst the Supreme Court has somewhat reduced the risk of a no-deal Brexit by ensuring Parliament can make its voice heard in the final weeks to the Brexit deadline, beyond that, the ruling has not reduced uncertainty very much," City Index analyst Ken Odeluga said.
The JP Morgan index that follows UK-listed companies making their money abroad <.JPDEUKEX> dropped to its lowest this month as strengthening of the local currency meant the value of their U.S. earnings would diminish.
The domestically-focussed FTSE 250 (FTMC) also fell 0.6% with financials and industrials dragging the most, as most market participants were still unsure as to how the already chaotic Brexit process would now play out.
Banks with a larger exposure at home, including Barclays (L:BARC) and RBS (L:RBS) moved lower, bringing an earlier rebound in financial stocks (FTNMX8350) to a halt.
"This latest twist in the Brexit narrative likely delays the decision point for Brexit but does not make it any clearer whether the UK will leave with a deal, without a deal or not at all," said Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management.
The ruling took the spotlight away from news that the United States and China will resume trade talks next month.
After its steepest monthly fall this year amid escalating trade tensions and recession fears in August, the blue-chip index has rebounded this month as various central banks have cut interest rates to counteract slowing global growth.
Shrugging off a wider gloom, London-listed shares of tour operator TUI (L:TUIT) rallied another 6.5% after it stuck to its earnings forecast for the year, a day after the collapse of its rival Thomas Cook.
Tobacco and nicotine e-cigarette makers Imperial Brands (L:IMB) and British American Tobacco (L:BATS) shed 3.5% and 1.8%, respectively, as the U.S. Congress began hearings this week about a mystery vaping-related lung disease.
Among midcaps, Card Factory (L:CARDC) gained 4% after announcing results and a special dividend while A.G. Barr (L:BAG) added 3.4% as the soft drinks maker stuck to its annual forecast despite a "disappointing" first half.
Small-cap Metro Bank (L:MTRO) sank 35% to a new life-low after it ditched a 250 million pound bond issue on Monday after failing to attract investors.