Britain's FTSE retreats further after PM May's Brexit speech

* FTSE 100 index down 0.7 pct

* PM May says UK to leave EU single market in speech

* StanChart (HKSE: 2888-OL.HK - news) leads banks, Roll Royce rallies (Recasts, adds quote and detail and updates prices)

By Kit Rees and Atul Prakash

LONDON, Jan 17 (Reuters) - Britain's top share index fell for a second day on Tuesday, with a jump in sterling following Prime Minister Theresa May's speech on Brexit hurting dollar-earning companies.

May promised the government would put the final deal to a vote in both houses of parliament, and said that the UK would seek an equal partnership with the EU.

"(May) said very clearly that ultimately no deal is better than a bad deal, and I think that's something that will be well-received amongst businesses in the UK," James Klempster, head of investment management at Momentum, said.

May also said that Britain will leave the EU single market when it exits the European Union, putting an end to speculation that London might try to seek a "soft Brexit".

The stronger pound put pressure on the FTSE 100, which is dominated by internationally-focused companies and extended losses to trade 0.7 percent lower at 7,272.56 points at 1249 GMT.

The mid-cap FTSE 250 index, made up mostly of domestic companies, reduced losses to trade just 0.2 percent lower.

"May's speech did not have anything new that was not already known. However, with the pound bouncing, the dollars earners are coming under pressure," Jawaid Afsar, senior trader at Securequity, said.

Banking stocks rose, led higher by Standard Chartered (BSE: 580001.BO - news) , which climbed nearly 7 percent to a 16-month high after Bank of America ML upgraded its rating on the stock to "buy" from "hold". The broker raised its 2018 earnings estimate by 18 percent to reflect higher returns on the bank's excess deposits.

Royal Bank of Scotland (LSE: RBS.L - news) gained 4.2 percent, and Barclays (LSE: BARC.L - news) also rose 1.5 percent.

Elsewhere, Rolls-Royce jumped 6.9 percent after the British aero-engine maker settled a long-running bribery investigation and said 2016 profit would beat expectations. The announcement came after 18 months of cost-cutting and restructuring.

Mining companies also put pressure on the FTSE 100. The sector index fell 2.1 percent following a drop in industrial metals prices.

Anglo American (LSE: AAL.L - news) , Rio Tinto (Hanover: CRA1.HA - news) , BHP Billiton (NYSE: BBL - news) and Antofagasta (Other OTC: ANFGF - news) fell 1.9 to 2.8 percent. (Reporting by Kit Rees and Atul Prakash; editing by Richard Lough)