By Shashwat Awasthi and Yadarisa Shabong
(Reuters) - London's FTSE 100 surged more than 1% on Friday after two days of selling, as investors turned cautiously optimistic about a Sino-U.S. trade deal and exporter stocks rose after the pound weakened on downbeat U.K. Purchasing Managers' Indexes (PMI) data.
The main index <.FTSE> was powered on its best day since late July by trade-sensitive scrips including HSBC <HSBA.L> and miners <.FTNMX1770> and further bolstered by internationally-exposed firms such as Unilever <ULVR.L> and Diageo <DGE.L>.
The FTSE 250 <.FTMC> added 0.6%, though gains were capped by data that showed British business this month suffered its deepest downturn since mid-2016 amid uncertainty around the general election and Brexit.
Further keeping gains in check was a 9% slide in Hochschild Mining <HOCM.L> after its 2020 output targets disappointed, and an 8% drop in thread manufacturer Coats Group <COA.L> after it warned on annual profit.
Hochschild shares endured their worst day since Aug. 2017, while Coats' shares hit their lowest level in two-and-a-half years.
Despite this, the mid-caps enjoyed their fourth straight week of gains, buoyed in recent sessions by polls that point to a likely Conservative Party victory in the Dec. 12 election.
A Conservative victory is seen as more likely to see through Brexit and it was this view that led the FTSE 250 to a more than one-year high earlier this week.
The blue-chip bourse recouped all losses from the past two sessions as mild risk appetite returned after a report http://bit.ly/2O6RSOl that Washington may delay tariffs on Chinese imports even if a deal is not signed by a Dec. 15 deadline.
Furthermore, comments by President Xi Jinping that Beijing wanted to work out an initial trade pact with Washington and a softer pound helped the FTSE handily outperform the broader European benchmark <.STOXX>.
"Investors are mindful of the trade deal's importance in supporting hopes of a global economic recovery next year," FXTM analyst Han Tan said. "A further escalation in trade tensions would only undermine the world economy's growth momentum while amplifying chatter about a recession."
Trade tensions had flared earlier this week after President Donald Trump threatened to raise tariffs on Chinese imports if no deal was struck, and after the U.S. Senate backed a bill supporting protesters in Hong Kong, which drew Beijing's ire.
Shares in AstraZeneca <AZN.L> advanced as much as 2.8% after the drugmaker won earlier-than-expected U.S. regulatory approval for a leukaemia drug.
(Reporting by Yadarisa Shabong and Shashwat Awasthi in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Andrew Cawthorne)