UPDATE 1-HSBC update sparks selloff in UK banks, drags FTSE 100 lower

Muvija M and Shashwat Awasthi

* FTSE 100 down 0.3%, FTSE 250 up marginally

* HSBC falls after profit miss

* Cairn Energy biggest midcap faller (Adds company news items, updates share moves)

Oct 28 (Reuters) - London's FTSE 100 was dragged lower on Monday as bleak earnings update from lender HSBC sparked a selloff in financial stocks, while confusion around a likely delay to Brexit and a snap election also hurt sentiment.

The bluechips were 0.3% lower by 0851 GMT, with more than half of the losses coming from HSBC, while the more domestically-focussed FTSE 250 inched slightly higher owing to gains in the pound.

HSBC shares slumped 3.4% and were set for its worst day in eight months as its third-quarter profit missed market expectations and the bank dropped its 2020 earnings target amid ongoing macro-economic uncertainties.

The update dragged a sub-index of banks lower by 2.1%.

Financial companies have also had to adjust to a lower interest rate environment this year as central banks globally move to loosen monetary policies to cushion an impact from trade tensions.

To that end, markets are also keeping a close eye on the U.S. Federal Reserve's meeting this week for more support from the world's biggest central bank to aid a slowing economy.

"The external factors that worry the Federal Reserve seem to be abating currently and hence should have less impact on monetary policy trajectory and policymaker's decisions," Hussein Sayed, Chief market strategist at FXTM, said.

In addition, UK firms face a lack of clarity at home as lawmakers and Prime Minister Boris Johnson feud over how to get Brexit done.

Johnson has demanded a general election after being forced to request for another delay to the departure date, and sources have told Reuters that the European Union could agree to an extension until Jan.31 with an earlier departure also possible.

News-related moves were scarce among midcaps, but for a 11.2% plunge in Cairn Energy after the oil and gas explorer abandoned an offshore well in Mexico.

The update put the stock on course for its steepest one-day fall in nearly three years.

Aston Martin, which has plunged nearly 80% from a 2018 debut, dropped 7% with a trader pointing to rating downgrade by Bank of America Merrill Lynch. (Reporting by Muvija M and Shashwat Awasthi, additional reporting by Safia Infant in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)