UPDATE 2-UK mid-caps rise for third day on bets of recovery

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* Insurer Beazley jumps on capital increase

* Surge in UK jobless claims to 1996-highs tempers optimism

* Caterer Compass Group slides on new share placement

* FTSE 100 off 0.8%, FTSE 250 adds 0.6% (Adds comments, update prices to close)

By Shreyashi Sanyal

May 19 (Reuters) - Britain's mid-cap index climbed for the third straight session on Tuesday on hopes of a speedy recovery from a coronavirus-fuelled recession, while more UK firms moved to shore up cash reserves to ride out the slump.

The domestically focussed FTSE 250 .FTMC rose 0.6%, boosted by digital payments solutions provider Network NETW.L which jumped 9.4% after Morgan Stanley (NYSE: MS ) raised its rating to "overweight" from "equal weight". blue-chip FTSE 100 .FTSE fell 0.8% after earlier jumping more than 1%.

Both indexes had made their strongest gains in more than a month in the previous session, powered by positive data from an early-stage trial of a coronavirus vaccine.

"Stock markets have edged back from the highs seen yesterday, but the broader recovery remains intact, as investors continue to find the positives," said Chris Beauchamp, chief market analyst at IG.

The relaxation of coronavirus lockdowns and a raft of stimulus measures have put the FTSE 100 on track for a second straight monthly gain. The benchmark index has rallied more than 22% from its mid-March low.

Money markets have ramped up expectations the UK could cut interest rates below zero for the first time amid a surge in jobless claims to 1996-highs and forecasts of the worst recession in 300 years. evidence of the business damage from the pandemic continues to pile up, with tobacco group Imperial Brands Plc IMB.L sliding 6.5% on plans to cut its dividend by a third and forecasting a bigger hit from the crisis in the second half of the year. the group should still be less affected than many other groups, but the dividend cut will be painful for shareholders regardless," said William Ryder, an equity analyst at Hargreaves Lansdown (LON: HRGV ).

The world's largest caterer Compass Group CPG.L fell 3.4% as it sought to raise 2 billion pounds ($2.5 billion) in a share sale to reduce debt and help it cope with the coronavirus crisis Beazley Plc BEZG.L jumped 7.8% as it raised 247 million pounds ($302 million) in fresh capital.