- UK inflation still in double-digit territory
- Real estate stocks fall on rate-hike concerns
- Bank stocks gain, help cut losses
- Fed decision awaited on Wednesday, BoE on Thursday
- FTSE 100 down 0.2%, FTSE 250 off 0.3%
March 22 (Reuters) - London's exporter-heavy FTSE 100 fell on Wednesday, with real estate stocks leading the retreat, as hotter-than-expected UK inflation data raised fears of more interest rate hikes and boosted the pound.
The blue-chip FTSE 100 index fell 0.2% after a near 2% bounce on Tuesday, with investors also waiting for the U.S. Federal Reserve's monetary policy decision later in the day.
The pound rose sharply against the dollar after Britain's consumer price index (CPI) inflation unexpectedly rose to 10.4% in February.
"In the markets and also on the part of the Bank of England, there's a structural underestimation of inflation," said Stefan Koopman, a senior macro strategist at Rabobank in Amsterdam.
"It's like a multi-headed hydra that pops up at various places and it's very hard to eradicate," Koopman said, referring to inflation.
The more domestically focussed FTSE 250 midcap index shed 0.3%.
Recent turmoil in the banking sector after the collapse of two regional lenders in the U.S. and troubles at Credit Suisse have led traders to dial back their expectations for rate hikes.
Traders are now fully pricing in a 25-basis-point interest rate hike by the Bank of England at its monetary policy meeting on Thursday.
Terminal rate expectations also shifted after the CPI data, with traders now looking at rates peaking in August at 4.5% versus a peak of 4.3% in August.
Real estate stocks fell 2.2%, with British Land Company down 4.2% after Morgan Stanley reduced its price target.
Rising UK gilt yields also weighed on sentiment. ,
Helping cut losses were banking stocks, which gained 0.9% as fears of a crises appeared to ease.
Retailer Marks and Spencer Group rose 3.8% after Exane BNP Paribas raised its rating to "neutral" from "underperform".
Meanwhile, British Prime Minister Rishi Sunak is set to win parliamentary approval for a key element of a post-Brexit deal on Northern Ireland.
Reporting by Shashwat Chauhan in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu