UPDATE 2-FTSE rally out of steam as trade nerves return, BAT slides

* FTSE 100 down, FTSE 250 down 0.4%

* Financials, oil majors drag on main index

* BAT has worst day in 7 months

* Pendragon tanks to 6 yr low after profit warning

* Majestic Wine gains after report Elliott to bid for outlets (Adds news item, graphic, updates to closing prices)

By Shashwat Awasthi

June 12 (Reuters) - London's main index eased as the latest salvoes in the U.S.-Chinese trade dispute kept investors on edge and weak demand outlook knocked oil shares, while British American Tobacco slid after warning of steeper declines in cigarette sales.

The FTSE 100, up for seven days straight after falling more than 3% in a global stock market sell-off in May, and the mid-cap FTSE 250 dipped 0.4% on Wednesday.

Oil majors were the biggest drags on the main index as oil prices slid more than 2%.

Financial stocks also weighed as President Donald Trump added to the trade nerves by saying he was not interested in a deal with Beijing unless it agreed to some "major points" in negotiations, while China declared it was "not afraid of fighting a trade war".

British American Tobacco skidded 4.4% on its worst day in seven months after it warned of steeper declines in cigarette sales globally mainly due to waning demand in its main U.S. market.

While the blue-chip index's losses last month were driven by fears that Trump's spats with trade partners were set to weaken global growth, the rises since have seen markets convinced that the U.S. Federal Reserve and other central banks will respond quickly with stimulus if needed.

"The rally has paused and things may get a bit tricky now as we may well see the market start to think - one may even say realise - that the Fed is not necessarily going to ride to the rescue," Markets.com analyst Neil Wilson said.

However, a timid U.S. inflation report seemed to bolster hopes of interest rate cuts.

Reckitt Benckiser erased earlier losses to end 4.4% higher. The consumer goods firm named PepsiCo executive Laxman Narasimhan to succeed outgoing chief executive officer Rakesh Kapoor.

Small-cap car dealership chain Pendragon lost more than a fifth of its value and slumped to a more than 6-1/2 year low as significant declines in new car and used car registrations caused it to warn on full-year profit. Shares of larger peer Auto Trader shed 2.4% on the FTSE 100.

Shares of sub-prime lender Provident Financial tumbled 6.6% on the mid-caps after Canaccord Genuity cut its rating to "sell", citing precarious capital position and dividend risks.

AIM-listed Majestic Wine surged nearly 10% after a Sky News report that activist fund Elliott Advisors had launched a bid for 200 of the specialist wine retailer's outlets.

(Reporting by Shashwat Awasthi in Bengaluru Editing by Patrick Graham)