UPDATE 2-Election takes edge off stocks with biggest British exposure

* FTSE 100 flat, FTSE 250 down 0.6%

* JD Sports biggest faller on FTSE 100

* UK-exposed stocks fall on both indexes

* Dollar earners among top gainers on main bourse (Adds news items, updates share moves)

By Muvija M and Shashwat Awasthi

Dec 11 (Reuters) - Stocks most exposed to the British economy slipped on Wednesday on growing expectations of a close election outcome, while JD Sports dropped 10% after its top investor cut its stake.

The mid-cap bourse, whose constituents make half of their earnings from business in Britain, closed 0.6% lower after dropping nearly 2% during the day.

The index has gained about 3% and outperformed blue chips since lawmakers voted in favour of an election, which pollsters YouGov predicted would result in a 28-seat Conservative win when the votes are counted on Thursday.

"An unstable Tory majority could see Johnson having to offer a second referendum to get his withdrawal agreement through Parliament," analysts at investment bank Jefferies said.

The exporter-heavy FTSE 100 ended flat as gains due to a weakening of the pound were offset by steep losses in oil firms after a surprise build-up of U.S. crude inventories.

The index missed out on a wider equity market rise as expectations that Washington would delay the Dec. 15 deadline for a new round of tariffs on Chinese goods grew.

Stocks considered most vulnerable to any shocks that may arise from Britain leaving the European Union weakened.

Lloyds, Britain's biggest mortgage lender, fell nearly 2%, while retailers Morrisons and Sainsbury's were down 2% and 1.4%, respectively.

An index of housebuilders dropped as much as 1.4%.

Investors were also awaiting a statement from a U.S. Federal Reserve rate-setting meeting to gauge the outlook for the world's largest economy amid a prolonged trade war with China.

Corporate headlines drove some moves.

Fashion retailer JD Sports, the FTSE's best performer this year, had its worst day in more than three years after Pentland sold 24 million shares at a discount.

Stagecoach jumped 9% to be among FTSE 250's top gainers after the transport company said half-year earnings in its London bus division was ahead of expectations.

Among smaller companies, roadside assistance provider AA surged 16% on buyback plans, while Petra Diamonds climbed 5% after restarting mining operations in South Africa.

(Reporting by Muvija M and Shashwat Awashti in Bengaluru; Editing by Arun Koyyur and Alexander Smith)