UPDATE 2-Prospect of easing trade tensions, weaker pound lift FTSE 100

* FTSE 100 up 0.8%; FTSE 250 roughly flat

* Improving trade sentiment buoys markets

* Compass Group , Kingfisher among biggest blue-chip movers

* Metro Bank rises as funding details awaited (Adds news items, analyst comment, updates to closing prices)

By Shashwat Awasthi and Muvija M

May 15 (Reuters) - Hopes that the United States' trade tensions with China and Europe will dissipate, combined with a weaker pound, lifted Britain's main index higher on Wednesday, as a slew of earnings reports also drove share moves.

The FTSE 100 .FTSE advanced 0.8% and outperformed its European peers. The FTSE 250 .FTMC was roughly flat.

Markets were initially upbeat after U.S. President Donald Trump said talks between Beijing and Washington had not collapsed, terming the Sino-U.S. conflict as "a little squabble".

Trump administration officials later said the President was expected to delay a decision on imposing tariffs on imported cars and parts by up to six months, further bolstering investor sentiment. may be a case of delaying the inevitable, but given that the U.S. is already at odds with China and Iran, the reasoning appears to be not to be fighting too many battles at once," CMC Markets analyst Michael Hewson said.

Asia-focused HSBC HSBA.L provided the biggest boost to the main index, while exporter stocks also supported it, benefiting from a drop in sterling as Brexit jitters resurfaced.

Sterling fell to a three-month low, with Prime Minister Theresa May expected to once again fail in getting her thrice-rejected Brexit deal approved. GBP/ an earnings-heavy day, Compass Group CPG.L was among the top blue-chip gainers. The world's biggest catering company rose 2.9% after raising its forecast for annual organic revenue growth. home improvement retailer Kingfisher KGF.L declined 3.6% after lower first-quarter sales in France, its second-biggest market. SSE.L and National Grid NG.L fell 2.5% and 0.9% respectively. Britain's opposition Labour Party published plans to re-nationalise the country's energy networks, prompting utilities to warn of damage to investment, high taxpayer costs and a slower transition to green energy. the mid-cap index, Metro Bank MTRO.L , which has seen volatile trading in recent months after disclosing an accounting error, gained 15% with details of fresh funding from new and existing investors awaited.

Provident Financial PFG.L skidded 6.5%. The company has been subject to a hostile takeover by smaller rival Non-Standard Finance NSF.L , which said after markets shut that it would go ahead with its 1.3 billion pound takeover for the larger subprime lender.