UPDATE 1-Britain's FTSE posts biggest drop since August as yields weigh

Britain's top share index suffered its biggest loss since mid-August as rising U.S. yields took their toll across global stock markets.

The FTSE 100 fell 1.2 per cent to 7,418.34 points, mirroring overnight weakness in Asia and on Wall Street as markets digested prospects of a U.S. interest rate hike.

"Markets across Europe and Asia tripped up on Thursday after a rise in U.S. Treasury yields to levels not seen since 2011", Russ Mould, an investment director at AJ Bell, wrote to his clients.

"The Treasury yield is commonly seen as the risk-free rate for investing, so an increase tends to be negative for other asset classes including shares," he added.

Weighing heaviest was the defensive consumer staples sector. British American Tobacco, which was trading without entitlement to its latest dividend payout, was the biggest faller of the day, shedding 3.8 per cent.

Other defensive sectors such as healthcare or consumer discretionary sustained heavy losses and weighed on the index.

Burberry fell 5.6 per cent along with shares in European luxury goods companies as persistent concerns over a slowdown in China bite sentiment.

All major sectors apart from financials, as banks typically benefit from rising rates and bond yields, were in the red.

HSBC rose 0.5 per cent and RBS ticked up 0.5 per cent.

The domestically focused mid-cap index also fell, shedding 1 per cent.

There, shares of Ted Baker fell 10 per cent after the British clothing retailer warned of a "challenging" remainder of the year as it posted a 3.2 per cent drop in pretax profit for the first half.

Among other retailers, DFS Furniture shares fell as much as 10 per cent, before recovering most of its losses to settle at a 3.1 per cent drop, after it said full-year pretax profit retreated by nearly half after Britain's summer heatwave.

Luxury carmaker Aston Martin was down 0.5 per cent, extending losses from its stock market debut on Wednesday. It had priced its shares at 19 pounds each, giving it a valuation of $5.6 billion.

British new car sales fell by roughly 20 per cent in September, preliminary data showed, as carmakers struggled to adjust to stricter emissions standards.

Separately, Japanese carmaker Nissan said there would be "serious implications" for Britain's manufacturing industry if the United Kingdom fails to secure a trade deal with the European Union as part of Brexit.