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FTSE retreats as more drama hits UK retail

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* FTSE 100 down 0.4 pct

* Retail stocks lead losses

* Moss Bros sinks 20 pct after profit warning

* Kingfisher bottom of FTSE 100

* FTSE 350 Retailers index lowest since Brexit

LONDON, March 21 (Reuters) - British shares fell on Wednesday as Kingfisher and Moss Bros piled more bad news on a UK retail industry reeling from the surge in e-commerce.

Share declines accelerated after data showed British workers' pay had risen at the fastest pace in nearly two and a half years. That pushed up the value of the pound and hit shares in big multinationals and exporters.

Any end to the long squeeze on UK household incomes was not showing through in the retail industry on Wednesday, however.

Formal clothing chain Moss Bros lost a fifth of its market value after a profit warning it blamed on supply chain problems and fewer customers in its stores. Home improvement chain Kingfisher also reported a recent deterioration in trading.

The FTSE 100 index was down 0.53 percent at 1028 GMT, with Kingfisher falling 8 percent to its lowest level since November. Among other retailers, clothing chain Next was down 1.2 percent and Primark owner ABF fell 1.1 percent.

After holding steady in January and February, UK retailer shares have tumbled 9 percent this month, outpacing a 3 percent drop in the wider FTSE 350 index. The retail index is at its lowest since the aftermath of the Brexit vote.

Underscoring the increasing power of online retail, U.S. ecommerce giant Amazon overtook Google owner Alphabet by market value on Tuesday.

Multinationals such as BAT, Diageo and Unilever helped pull down the FTSE as the pound rose 0.4 percent against the dollar following the wage growth numbers.

Morgan Stanley strategists had been forecasting strong data that would pave the way for the Bank of England to deliver a hawkish statement when it meets on Thursday.

"It has been well established that a number of Bank of England officials are expecting wages to start outstripping headline inflation in the coming months, and a strong average earnings number today could well reinforce that narrative, and raise expectations of a move on rates in May, irrespective of yesterdays softening in headline CPI," said Michael Hewson, Chief Market Analyst at CMC Markets UK.

Investors were also awaiting the conclusion of a U.S. Federal Reserve meeting for signals on the pace of expected interest rate rises. (Reporting by Tom Pfeiffer, Editing by Helen Reid)