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Britain's FTSE retreats as sterling rises

LONDON, Jan 2 (Reuters) - UK shares retreated in morning trade on Tuesday, with dollar-earning exporters hit hardest as sterling rose.

At 0920 GMT, Britain's FTSE index was down 0.3 percent, in line with European peers on the first trading day of the year after a record-setting 2017.

Small caps, more focused on the domestic economy and therefore less vulnerable to a stronger pound, gained 0.1 percent.

Rio Tinto was the worst performer, losing 2 percent while other miners including Antofagasta and BHP Billiton fell 1.7 percent and 1.6 percent, respectively.

Glencore lost 0.8 percent after it agreed to sell an Australian coal mines to British industrialist Sanjeev Gupta's GFG Alliance for an undisclosed sum.

British carmakers were also sharply down, losing 1.7 percent. Europe-wide, the sector fell about 2 percent on weak December data from France, a trader said.

Energy group BP was down 0.5 percent after it said it expected a positive impact on future post-tax earnings from the U.S. tax overhaul, but also a one-off non-cash charge of about $1.5 billion on fourth-quarter results.

"Whilst there is always the chance that the necessary hit turns out to be more, you would imagine the company has been conservative, meaning more likelihood that it in fact turns out to be less," said Mike van Dulken, head of research at Accendo Markets.

Royal Dutch Shell Plc, which said last week it would also take a one-off hit but benefit over the long term from the overhaul, lost 1 percent.

Compass Group < CPG.L> was little changed, shedding 0.2 percent after world's biggest catering firm's outgoing CEO died in a plane crash on New Year's Eve.

In the airline industry, British Airways' owner IAG added 1.5 percent after it agreed to buy Niki, Air Berlin's insolvent Austrian holiday airline, for 20 million euros.

BBA Aviation retreated 0.5 percent after the group appointed a new chief executive. (reporting by Julien Ponthus; editing by John Stonestreet)