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Updated at 1550 GMT

By Purvi Agarwal and Pranav Kashyap

July 5 (Reuters) -Britain's domestic-focused stocks logged their best week in more than five months on Friday after a landslide election win by the Labour Party raised investors' hopes that the outcome will bring a boost for the UK economy.

The mid-cap FTSE 250 .FTMC was up 0.9%, edging towards the key 21,000 mark. It hit more than a two-year high earlier in the session and had its best week since Jan 22.

"Labour wanting to boost the economy and helping businesses will more likely impact companies on the FTSE 250 than the FTSE 100 as its more domestically oriented," said Fiona Cincotta, senior markets analyst at City Index.

British homebuilding companies were the top gainers on the FTSE 100 .FTSE as investors welcomed Keir Starmer's plans for building 1.5 million new homes over the next five years.

The UK homebuilders index .FTNMX402020 jumped 2.5%, while the construction sector .FTNMX501010 gained 3.1%. Shares in Persimmon PSN.L, Taylor Wimpey TW.L, Vistry VTYV.L and Barratt BDEV.L climbed between 2.2% and 3.4%.

The blue-chip FTSE 100 .FTSE, however, fell 0.5%, after logging its strongest day in almost two months in the previous session as pound strengthened against the U.S. dollar.

The FTSE small cap index .FTSC was up 0.1%.

Goldman Sachs raised its UK GDP growth forecast and said that the mid-cap FTSE 250 is the stock index to watch for investors under the Labour government.

"The election reflects some confidence in the market - a strong government that can actually do things. It's something we haven't seen for many years in the UK," Nick Saunders, CEO of trading platform Webull UK said.

The yield on 10-year British government bonds GB10YT=RR gilts dropped to 4.129%, further uplifting sentiment.

With the election over, investors have priced in a 61% chance of the Bank of England commencing its rate trimming-cycle at its next meeting on August 1. 0#BOEWATCH

Across the Atlantic, U.S. data showed job growth slowed marginally in June and unemployment rate rose to more than a 2-1/2-year high of 4.1%, sending Nasdaq .IXIC and S&P 500 .SPX to hit fresh intraday highs. .N

Reporting by Purvi Agarwal, Pranav Kashyap and Roshan Abraham in Bengaluru; Editing by Nivedita Bhattacharjee, Sohini Goswami and Jane Merriman

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