THE pound slid on Friday as investors worried about the prospects of a swift Brexit trade deal after EU leaders suggested the second phase of negotiations would be "tougher" than the first.
Sterling was down nearly 0.9 per cent against the US dollar to trade at 1.331 and was hovering near two-and-a-half week lows versus the euro at 1.130.
Leaders of the remaining 27 EU member states have agreed to allow Brexit negotiations to move onto the second phase - which is set to include post-Brexit trade relations.
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However, markets were spooked after European Commission president Jean-Claude Juncker and German Chancellor Angela Merkel said it was not likely to be an easy ride.
Connor Campbell, a financial analyst at SpreadEx, said: "The formal shift from phase one to phase two of negotiations between the UK and EU only intensified the pound's Brexit migraine this Friday.
"What we just went through was meant to be the easy part.
"Now the UK heads into the new year facing an 'even tougher' (Angela Merkel) and 'significantly harder' (Jean-Claude Juncker) set of Brexit talks as the country tries to work out what its future trade relationship will look like with the EU while desperately seeking avoid a 'no deal' scenario by the March 29 2019 divorce deadline."
The formal process is also likely to run to a slower timetable, with official EU guidelines for trade talks not due to be approved until March 2018, when Mr Juncker said the "real negotiations" would begin.
The FTSE 100, meanwhile, ended the day up 0.57 per cent, or 42.45 points, at 7,490.57 while the French Cac 40 fell 0.15 per cent and the German Dax rose 0.27 per cent.
In oil markets, Brent crude prices were flat at about $63.33 (£47.57) per barrel as forecasts for higher US output in 2018 worried investors who have been hoping for an end to the years-long oil glut.
In UK stocks, Unilever's London-listed shares ended the day up 1.35 per cent, or 56p, to 4,196p after the consumer goods giant confirmed it had struck a €6.8 billion (£6bn) deal to sell its under-performing spreads business to private equity firm KKR.
Persimmon fell 26p to 2,626p after announcing that chairman Nicholas Wrigley intends to resign following concerns over excessive executive pay at the firm.
Sky rose 28p at 1,018p while BT shares ended the day up 3.7p at 277.55p after the rival broadcasters announced a deal to sell their channels on each others' platforms.
Trinity Mirror jumped 1.25p to 73p as the publisher of the Daily Mirror newspaper said it was making "good progress" in its efforts to acquire the Express titles from Northern & Shell, while reporting a slump in revenues.
Shares in Bargain Booze owner Conviviality rose 8.5p to 386.5p amid news it was buying more than 100 convenience stores from collapsed wholesaler Palmer & Harvey in a £25 million deal funded by a share placing.
The biggest risers on the FTSE 100 were Sky up 28p at 1,018p, WPP up 35p at 1,389p, Mondi up 43p at 1,818p and Fresnillo up 31p at 1,336p.
The biggest fallers on the FTSE 100 were NMC Health down 68p to 2,800p, Next down 99p to 4,246p, Mediclinic International down 12.5p at 609p and Marks and Spencer Group down 5.5p at 303.8p