UPDATE 2-Amid Brexit deal hopes, UK Plc outshines FTSE 100

(Updates graphic, prices)

By Josephine Mason

LONDON, Oct 11 (Reuters) - Hopes that Britain will seal a Brexit deal saw unloved London-listed companies with exposure to the domestic economy rise more than blue-chip stocks on Friday, for the first time since May, in a major reversal of fortunes.

JP Morgan's UK domestic plays index that tracks about 30 UK stocks that make all or most of their revenue at home soared almost 8% on Friday for its best day since the grouping was created nearly three years ago.

The index outperformed the FTSE 100 by 4.4%, the only time since May that it has performed better.

The gains were driven by a rally in housebuilders, Persimmon , Barrett and Taylor Wimpey, domestic banks Lloyds Bank and Royal Bank of Scotland and retailers, such as Kingfisher which owns DIY chain B&Q.

A JP Morgan index that follows UK-listed companies making their money abroad ended the day flat.

Investors appetite for UK focussed assets surged after British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar said on Thursday they saw "a pathway to a possible deal" ahead of the Oct. 31 Brexit deadline.

Sterling hit a three-week high late on Thursday, although the currency had a rollercoaster ride on Friday after comments from European Council President Donald Tusk tempered some of the optimism over talks.

Shares in London-listed companies that rely on the British economy have suffered since the June 2016 referendum on European Union membership.

Since May the index has languished at a big discount to the FTSE-100 as worries have grown that the country will crash out of the bloc following the resignation of PM Theresa May.

The markdown widened following the appointment of staunch Brexiteer Johnson as prime minister.

(Reporting by Josephine Mason, editing by Toby Chopra and Elaine Hardcastle)