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* FTSE 100 down 0.1 pct
* FTSE 250 up 0.7 pct
* Dunelm surges after trading update
* Centrica top loser on the main index
Jan 7 (Reuters) - British shares were hovering around flat in directionless early trade on Monday as investors hoped for progress to end the U.S.-Sino trade row, while a weaker dollar limited gains among multinational heavyweights.
UK’s main index edged 0.1 percent lower, underperforming their European peers, and the mid-caps were up 0.77 percent higher by 0858 GMT.
Stocks recorded their best weekly gain in two months on Friday as trade talks that kicked off on Monday offered some respite to investors.
As talks between the world’s two biggest economies kicked off in Beijing on Monday, U.S. President Donald Trump’s comments on Sunday that trade talks were “going very well” led to some cautious optimism among investors.
But Brexit uncertainty continued to weigh. Prime Minister Theresa May said on Sunday that Britain would be in uncharted territory if her Brexit deal is rejected by parliament later this month, despite little sign that she has won over sceptical lawmakers.
Although both the UK indexes opened higher, FTSE 100 - which makes about 70 percent of its income abroad - handed back some gains as a weaker dollar hit shares in multinational firms AstraZeneca, Reckitt Benckiser, Unilever and Diageo.
Meanwhile, British Gas-owner Centrica tumbled 4 percent, topping the losers on the main index, after Jefferies downgraded the stock and HSBC dipped nearly 2 percent after Citigroup cut rating on the stock to sell.
Miners, particularly vulnerable to trade frictions, helped cushion the fall in early trade.
Among the midcaps, homeware retailer Dunelm surged 13 percent, hitting its highest in nearly a year, after it guided to a jump in first-half earnings, boosted by revenue growth in both stores and online.
Retailers will be in focus this week with supermarkets and high street chains due to issue their Christmas trading updates, offering investors an insight into how the battered UK sector fared over the holiday.
Among other mid-caps, power generator ContourGlobal added 6.3 percent after a deal to buy energy plants from Mexican petrochemical company Alpek for $801 million.
Peer-to-peer lender Funding Circle, which floated last year, fell 6 percent after BofA Merrill cut rating on the stock. (Reporting by Muvija M and Shashwat Awasthi in Bengaluru; editing by Josephine Mason)