UPDATE 1-FTSE 100 drops as Middle East tensions dent risk appetite

Shashwat Awasthi

* FTSE 100, FTSE 250 down 0.4%

* U.S. kills Iranian major general, Iraqi militia commander

* Investors pile into oil

* Gambling cos fall among midcaps (Adds news items, analyst comments, updates share prices)

Jan 3 (Reuters) - London's main index fell on Friday as a U.S. air strike in Iraq stoked geopolitical tensions and drove investors away from risky assets, though oil stocks gained from a surge in crude prices.

The FTSE 100, which began the decade with solid gains, followed global peers into the red and was 0.4% lower after the air strike that killed top Iranian and Iraqi commanders. The FTSE 250 also shed 0.4% by 0850 GMT.

However, Shell and BP advanced as oil prices shot up more than 3% on fears of a supply disruption.

"As this is a developing story, it is hard to say whether these gains will be sustained, thinking back to the price action after the attacks on the Saudi oil installations last year," OANDA analyst Jeffrey Halley said.

Prospects of higher fuel costs dragged shares of airline companies lower. easyJet and British Airways owner IAG gave up more than 2% and were among the biggest blue-chip losers.

Gambling stocks came under pressure after a report https://www.thetimes.co.uk/article/betting-websites-face-ban-on-vip-gambling-sch e m e s - l h 7 n j t 3 k 5

# that firms could be banned from running "VIP schemes" that reward gamblers who regularly lose large sums with free bets and offer cashback on losing wagers.

William Hill, Playtech and GVC fell between 2.5% to 4%.

Retailer Next, which predicted a higher annual profit due to better-than-expected sales through the Christmas trading period, gave up early gains to trade flat.

Its chief executive officer separately said he does not think Prime Minister Boris Johnson's decisive election victory last month will necessarily lead to an improvement in the consumer environment in 2020.

Payment solutions firm Finablr slipped 2% after its unit, Travelex, said on Thursday it had taken all its systems offline after being hit by a software virus.

Galliford soared more than 55%, reflecting an adjustment to its share price following the completion of the demerger and sale of its housebuilding business to Bovis Homes .

Including Friday's moves, both UK benchmark indexes were on course to end the holiday-shortened week lower, with the FTSE 100 set to lose nearly 1%.

Profit-taking before the turn of the decade had eaten into the indexes' gains earlier this week, and Halley said more pertinent trading would only begin from Monday.

"My first impressions of 2020, though, are that a lack of volatility will not be an issue this year," he said. (Reporting by Shashwat Awasthi in Bengaluru; Editing by Arun Koyyur)