FTSE 100 dips with focus on rate outlook as yields rise

(Reuters) -The UK's FTSE 100 slipped on Tuesday as declines in banking stocks offset gains in energy shares, and the market awaited economic data from around the globe to gauge the monetary policy outlook.

The exporter-heavy FTSE 100 slipped 0.1%, while the domestically focused FTSE 250 dropped 1.3% to a one-week low.

Wall Street also came under pressure after upbeat economic data stoked uncertainty among investors about the pace of monetary policy easing by the Federal Reserve this year. [.N]

British yields have risen in recent weeks as most investors expect the Bank of England to cut interest rates by only about half a percentage point this year with inflation likely to hover above the central bank's 2% target.

The 30-year yield peaked at 5.252% on Tuesday, the highest since August 1998, adding to the problems facing finance minister Rachel Reeves, who plans big borrowing to fund higher public investment and spending.

Financial stocks were the main drags on the FTSE 100, with heavyweight HSBC down 1.1% and NatWest Group off 3.5%.

Adding to the gloom, data showed activity in Britain's construction industry grew at the slowest pace in six months in December and British house prices dropped unexpectedly last month for the first time since March.

This week's focus is on the December U.S. nonfarm payrolls report due on Friday, a metric for gauging the Federal Reserve's interest rate path for 2025.

Among other stocks, Taylor Wimpey dropped 4.5% after Barclays downgraded its rating to "equal-weight" from "overweight".

Clothing retailer Next advanced 3.8% after it raised its annual profit outlook for the fourth time in six months following a strong Christmas season.

AJ Bell shed 6.6% after Citigroup downgraded the investment platform to "sell" from "neutral".

(Reporting by Shashwat Chauhan and Sruthi Shankar in Bengaluru; Editing by Vijay Kishore and Barbara Lewis)