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British stocks fall as profit warnings bruise IWG, Interserve

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* FTSE 100 down 0.3 pct

* Mid-caps down 0.7 pct

* IWG plummets 34 pct on profit warning

* Warning on covenant breaches sends Interserve down 38 pct

LONDON, Oct 19 (Reuters) - Britain's main share index fell 0.3 percent on Thursday as a weak third-quarter update from Unilever weighed, while mid- and small-cap trading was marred by profit warnings from IWG and Interserve which slashed their market value by a third.

Disappointing retail sales figures sent sterling to a one-week low, helping the internationally-exposed FTSE reduce earlier losses slightly.

Fresh from a record close, the FTSE 250 sank 0.7 percent as workspace group IWG plummeted 34 percent after warning on profit. It cited natural disasters and weakness in London trading as contributing factors.

The firm said it now expected its profits to be 160 to 170 million pounds, against their previous estimate of 216 million, sending shares to a 22-month low.

"There has been a strong sales uplift in October, but only time will tell if this converts to revenue performance," Stifel analysts wrote in a note. "Caution is warranted."

Although mid-caps have hit fresh highs, investor sentiment caps has softened into third-quarter results, with analysts revising down their expectations for earnings.

"I'm not surprised that UK companies that derive the majority of their revenues from within the UK are starting to miss earnings forecasts," said Christopher Peel, chief investment officer at Tavistock Wealth.

"The UK has become a relatively unattractive country to be invested in (bonds and equities) compared to continental Europe, Asia and the U.S.," he said. British companies were likely to underperform global counterparts for the foreseeable future as a result, he added.

On the FTSE 100, Unilever weighed, falling 4 percent after the consumer goods giant's third-quarter results missed consensus expectations.

Unilever blamed poorer weather in Europe for slower than expected sales this summer, particularly impacting ice cream sales.

Support services and construction firm Interserve sank 35 percent on the small-cap index after warning it may breach covenants after a further deterioration in trading.

The group warned profits would be weaker than it had expected in September, suggesting profit in the second half would be half that of last year, Stifel analysts wrote, putting their target price and forecasts for the stock under review.

Carillion which also provides support services to the construction industry, had plummeted earlier this summer after a string of profit warnings.

"We have plenty of support services firms that are doing OK, so I do think it's specific to the companies like Carillion and the markets they serve, rather than an issue for support services in general," said Colin McLean, director at SVM Asset Management.

(Reporting by Helen Reid; Editing by Jon Boyle)