By Muvija M and Yadarisa Shabong
(Reuters) - Britain's exporter-heavy blue-chip index lost ground as sterling hit multi-month highs after European Commission President Jean-Claude Juncker said that a Brexit deal is still possible.
The FTSE 100 dipped by 0.2%, registering its first weekly loss in three, though sterling's early gains helped the more domestically focused mid-cap FTSE 250 to firm by 0.4%.
Housebuilders, generally sensitive to Brexit updates, were among those to benefit as the sector index reached its highest in nearly two months on Juncker's apparent optimism.
The pound jumped to two-month highs but cooled later in the session after the Irish Foreign Minister said that Britain and the European Union were not yet close to agreeing a deal on Britain's planned departure from the European Union.
That was too late in the day for the likes of Unilever and Reckitt, which closed sharply lower, ensuring the FTSE lagged global markets that were boosted by monetary stimulus.
"If we do have a Brexit breakthough, the pound will gain but that will weigh on the FTSE 100. It is like one step forward, two steps backwards," said CMC Markets analyst David Madden.
Big tobacco companies BAT and Imperial Brands dropped about 2% each after U.S. health officials said there were now 530 confirmed and probable cases and seven deaths from lung-related illnesses tied to vaping.
Traders said BAT shares were also pressured by a report by Dutch evening newspaper NRC that the country's tax office was seeking about 1 billion euros from the company for alleged tax evasion.
Rolls-Royce ended 2% down after saying it will take longer than expected to fix problems with its Trent 1000 engine but had lost as much as 5% during the session.
Mid-cap financial services company Investec slumped by more than 8% after warning that first-half profit will be lower than a year ago because of restructuring costs and as global trade tensions and Brexit also take their toll.
Among smaller companies, the world's oldest holiday company Thomas Cook tanked 23% to a record low after saying it needs 200 million pounds to satisfy its lenders, leaving it at the risk of collapse in the next few days.
(Reporting by Muvija M and Yadarisa Shabong in Bengaluru; Editing by David Goodman)