UPDATE 1-Brexit-sensitive stocks, sterling hit by deepening political turmoil

By Helen Reid

(Adds comments, details, sterling move)

By Helen Reid

LONDON, May 22 (Reuters) - Shares in Britain's housebuilders and retailers tumbled and sterling slid on Wednesday after multiple media reported rumors Prime Minister Theresa May's ministers could oust her in a row over her latest deal to exit the European Union.

The reports, underscoring deepening uncertainty over Britain's leadership, gave Brexit-sensitive stocks and sterling their first major jolt since March when the then Brexit deadline was looming.

Housebuilders Taylor Wimpey, Berkeley Group, Barratt Development, and Persimmon fell sharply, down 3.7 to 5.4% by 1450 GMT.

Housebuilders have been particularly sensitive to any signs of rising likelihood of a hard Brexit, which many investors fear would damage the world's No. 5 economy.

"What's weighing on the housebuilders is this expectation that if we did see a change in leadership in the Conservative party it would be more likely to rally around a no-deal Brexit," said Edward Park, deputy chief investment officer at Brooks Macdonald in London.

"Every day that moves on the probability of either no Brexit or no deal increases. It's very difficult to price the housebuilders, Brexit-sensitive stocks, or sterling - you know the current price is wrong because it's either too cheap or too expensive!" he added.

The FTSE 250 index of smaller, more domestically-sensitive companies, was down 0.5%, lagging the FTSE 100 which was holding up thanks to its multinational constituents which gain when sterling falls.

Sterling extended losses in the afternoon session and was down half a percent against both the dollar and the euro around 1400 GMT, having hit its lowest level since a January flash crash in early trade.

Retailers, which are also highly exposed to the British economy, fell too. Sainsbury's lost 4% while Marks & Spencer extended earlier falls after results, down 7.6%.

Brexit-sensitive airlines easyJet and British Airways owner IAG were down 5.6% and 3.9% respectively, while state-backed Royal Bank of Scotland dropped 3.6%. (Reporting by Helen Reid, Additional Reporting by Abhinav Ramnarayan; editing by Josephine Mason and Jon Boyle)