Britain's FTSE capitulates to stronger pound, U.S. election nerves

* FTSE 100 down 0.9 pct; FTSE 250 up 0.1 pct; Wall St up

* Morrisons, William Hill (Frankfurt: 633847 - news) drop on results

* Imperial Brands (LSE: IMB.L - news) ekes out gains after reassuring update

* M&A in focus ahead of results on Wednesday (Adds detail, updates prices)

By Danilo Masoni and Josephine Mason

MILAN/LONDON, Nov 6 (Reuters) - Britain's blue chip share index was lower on Tuesday as the pound strengthened amid renewed optimism over a Brexit deal while investors took risk off the table as Americans went to the polls in midterm elections.

Disappointing results from the fourth-largest supermarket group Morrisons and bookmaker William Hill also weighed.

The FTSE 100 top share index ended the day down 0.9 percent as a stronger pound made UK exports less competitive. The domestically focused FTSE 250 index was up 0.1 percent.

Sterling hit its highest since Oct (Shenzhen: 000069.SZ - news) . 19 as hopes grew for a Brexit deal breakthrough after a report said the European Union is preparing to back a compromise proposal on the Irish border to resolve the last major hurdle in the talks.

"It is probably Brexit and the apparent hopes pushing up sterling that means the UK is bottom of the European table, but looks like risk is out of favour today ahead of the midterms," said Chris Beauchamp, chief market analyst at IG (Frankfurt: A0EARV - news) .

Wall Street edged higher in thin trading as investors braced for midterm elections in the United States, the first major test of President Donald Trump's tax cuts and trade policies.

With UK companies halfway through the reporting season, investors had a slew of earnings to digest on Tuesday. Results beats have outnumbered misses so far, according to UBS (LSE: 0QNR.L - news) .

Morrisons was the second-biggest faller on the FTSE 100, down 4 percent after falling to its lowest since May, following its disappointing update.

The group said third-quarter growth had slowed from the previous quarter and came in below analysts' forecasts.

"After a party there is usually a hangover and that's what supermarket Morrisons faces this morning as it reports slowing growth... slightly short of analysts' expectations," said Russ Mould, investment director at AJ Bell.

"This follows on from a great summer when the World Cup and UK heatwave helped the company achieve its best sales performance in nearly a decade," he added.

Shares (Berlin: DI6.BE - news) in rivals Tesco (Frankfurt: 852647 - news) , which also missed first-half profit forecasts when it reported results last month, and Sainsbury (Amsterdam: SJ6.AS - news) 's fell 2.4 and 0.1 percent respectively.

Elsewhere on the high street, Marks & Spencer (Frankfurt: 534418 - news) eked out gains, up 1.6 percent ahead of interim results on Wednesday, with investors hoping to get an update on how the struggling high street chain's turnaround plan is faring.

Imperial Brands came off earlier highs to end the day up 0.2 percent after the tobacco firm reported higher full-year revenue and better-than-expected adjusted profit, helped by market share gains.

"Today's beat should reassure investors," said Liberum analysts in a note, reiterating their buy rating on the stock.

Gains were capped though by concerns about a U.S. crackdown on e-cigarettes and plans to shore up inventory ahead of Brexit, dealers said.

Also rising were shares in AB Foods, up 3 percent, after the company reported an adjusted operating profit of 1.4 billion pounds, up 3 percent and ahead of analyst expectations.

AB Foods however said price pressures in the global sugar market would prevent its earnings from growing in the coming 12 months as the drag on the business offsets strong demand for its fashion retailer Primark.

William Hill dropped 6 percent to the bottom of the FTSE 250 after it forecast lower full-year operating profit, largely below analysts' consensus, blaming weaker football and racing margins as well as challenging conditions on the UK high street.

Elsewhere on the midcap index, IWG (LSE: IWG.L - news) shares rallied 7.6 percent after positive sales data and Weir Group (Other OTC: WEIGY - news) was up 5 percent after reporting robust order growth.

(Reporting by Danilo Masoni and Josephine Mason; Editing by Janet Lawrence)