(Reuters) -London's main stock indexes closed higher on Thursday as political tensions appeared to ease after finance minister Rachel Reeves said she's "totally" up for the job, drawing support from Prime Minister Keir Starmer.

The blue-chip FTSE 100 was up 0.6%, while the midcap index gained 1.2%.

Main FTSE stock indexes had declined on Wednesday in a market-wide selloff after Reeves appeared tearful in parliament following a series of U-turns on welfare reforms that blew a hole in her budget plans.

"Some worries remain about the government being backed into a corner and losing its grip on public finances," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"Investors may still be on alert to fresh opposition to government plans to trim spending, to try and abide by its fiscal rules and keep bond markets onside."

Meanwhile across the Atlantic, traders pared bets on a July rate cut by the U.S. Federal Reserve after data showed the country's labour market remained resilient in June.

In Britain, retail stocks topped the sectoral chart with a 2.2% gain after electricals retailer Currys beat profit estimates on strong demand for mobile and computing products. Currys shares jumped 7.1%, while peer AO World was up 1%.

However, Watches of Switzerland fell 8% and was among the top midcap decliners after the luxury retailer warned of a margin hit due to tariff pressures.

Pharmaceutical stocks were the sectoral losers, declining 1.3%. AstraZeneca fell 1.8% and GSK lost 1.1%.

On the macro-economic front, data from the S&P UK services PMI showed that British services sector activity expanded at the fastest rate in almost a year, while the prices charged rose at the slowest pace in nearly four years.

The Bank of England is closely assessing service sector prices to gauge inflation pressure. Investors widely expect a rate cut in August.

(Reporting by Twesha Dikshit and Ankita Yadav; Editing by Saumyadeb Chakrabarty and Mark Heinrich)