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FTSE 100 rises 0.6%, FTSE 250 adds 1.2%

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Watches of Switzerland ( WOSGF ) slumps after margin hit warning

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Currys ( DSITF ) up after beating profit expectations

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UK services sector expands at fastest pace since August

(Updates to closing prices)

July 3(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 ( DSITF )

beat profit estimates on strong demand for mobile and

computing products. Currys ( DSITF ) shares jumped 7.1%, while peer AO

World was up 1%.

However, Watches of Switzerland ( WOSGF ) 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 ( AZN ) 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.