UPDATE 2-FTSE 100 lingers in red as Fed decision looms and Kingfisher wanes

* FTSE 100 down 0.1%, FTSE 250 up 0.1%

* Fed meeting conclusion eyed

* Kingfisher falls after earnings report

* IAG outshines

* Sirius Minerals steepest mid-cap faller (Adds news items, analyst comment, updates to closing prices)

By Yadarisa Shabong and Muvija M

Sept 18 (Reuters) – London’s main share index weakened on Wednesday, underperforming its European peers ahead of a U.S. Federal Reserve rate decision, with home improvement retailer Kingfisher falling the most on the bourse as it struggled to lift its earnings.

The FTSE 100 ended 0.1% lower, while the domestically-focussed mid-cap FTSE 250 index added 0.1%.

The Federal Reserve is set to conclude its latest policy meeting on Wednesday, with expectations that it will cut interest rates for the second time this year as it looks to cushion the economy from the impact of an ongoing trade war with China.

“The mood today has been one of cautious optimism, as the U.S. central bank is tipped to lower interest rates, but seeing as the U.S. economy is in good shape, there is the possibility the update won’t be as dovish as expected,” CMC Markets analyst David Madden said.

Home improvement retailer Kingfisher gave up 3.2% after posting a fall in underlying earnings due to weak performance at its French business.

Some blue-chip exporter stocks such as AstraZeneca and British American Tobacco cushioned losses, boosted by a weaker pound after UK prices grew at their slowest pace since late 2016 and mounting concerns of a no-deal Brexit also weighed.

But losing ground were housebuilders Taylor Wimpey, Barratt Development and Persimmon, which fell between 1.3% and 1.8%. British Airways owner IAG added 1.9% after BA pilots called off a strike set for Sept. 27 to give time for talks, after 48 hours of industrial action earlier this month grounded almost all the airline’s flights in a dispute over pay.

Luxury brand Burberry reversed course to close 2.5% lower. UBS analysts hiked Burberry’s price target but downgraded the sector.

Sirius Minerals lost another 5% on the mid-cap index, after plunging more than 50% on Tuesday when it cancelled a $500 million bond sale and delayed a project to mine for fertiliser under a national park in northern England.

Royal Mail slipped 4% after it confirmed that the Communication Workers Union (CWU) intends to ballot its members for industrial action against the postal company.

Small-cap Pendragon fell 10% to a more than seven-year low after the car dealership chain cancelled its dividend and issued a bleak forecast as deep price cuts to offload used car inventory pushed it to a first-half loss. (Reporting by Yadarisa Shabong and Muvija M in Bengaluru; Editing by Andrew Heavens and Alex Richardson)