By Muvija M and Shashwat Awasthi
(Reuters) - London stocks slipped on Tuesday as the prospect of a December general election put investors in Britain in a cautious mood, while heavyweight BP slid on lower profits.
Market losses accelerated after a Reuters report that a "phase one" trade agreement between Washington and Beijing may not be signed next month, aggravating pessimism over the U.S.-China trade war.
The FTSE 100 (FTSE) dipped 0.3%, its biggest daily drop in ten days, pulling back from the previous session's near one-month high. The mid-cap FTSE 250 was down 0.2%.
Oil major BP (L:BP) was the biggest drag on the main bourse, sliding 4.2% after reporting a sharp drop in third-quarter earnings on the back of weaker oil prices and lower production.
"Stock markets in Europe are largely in the red this afternoon as the feelgood factor from the Brexit delay has been replaced by the caution of a possible general election in the UK," CMC Markets analyst David Madden said.
"Elections can be risky... the Conservatives are polling well ahead of the Labour Party but traders have learned not to rely on opinion polls given the events of the past three years, hence why equities are down."
While the European Union on Monday agreed to a Brexit delay of up to three months, much remained unclear as lawmakers argued over how, when or even if the UK should leave the bloc.
British Prime Minister Boris Johnson has said he will again push for a general election, which the Labour party said it would now back as a no-deal Brexit was off the table.
Investors are also awaiting the conclusion of this week's U.S. Federal Reserve meeting, at which the central bank is expected to cut interest rates for the third time this year to boost a slowing economy amid an ongoing trade war with China.
"We expect a pickup in global growth in the next six to 12 months, yet see limits to how much monetary easing can be delivered in the near term," BlackRock (NYSE:BLK) analysts said.
"Monetary policy is no cure for the weaker growth and firmer inflation pressures that may result from sustained trade tensions."
Financial companies (FTNMX8350), whose margins would be under pressure in a low interest rate scenario, were the second biggest sector-wide drag on the FTSE 100 as they tumbled 1% to their lowest level in two weeks.
Royal Mail (L:RMG) skidded 5% - its steepest one-day drop in three months - to the bottom of the FTSE 250 after JP Morgan cut its rating on the stock to 'underweight' from 'neutral'.
Online trading platform Plus500 (L:PLUSP) jumped 5.3% after reporting a rise in customer additions and revenue for the third quarter as macro events drove strong trading.