By William James

LONDON (Reuters) - A Brexit deal that weakens London's ties to EU financial markets would damage Britain's economic future, Business Secretary Greg Clark told Reuters, vowing to protect the City while the government focuses on nurturing a hi-tech manufacturing revival.

The extent of the expected economic damage caused by leaving the European Union was revealed on Wednesday at finance minister Philip Hammond's first budget update since the June vote, which included lower growth forecasts and weaker public finances.

Speaking shortly after Hammond's Autumn statement, Clark underlined the economic importance of getting a good deal for the financial sector in negotiations with the EU on how Britain will trade with the bloc once it leaves.

"We know that having fragmented financial markets is not good for the competitiveness of any business, any country in Europe whether it is the UK or overseas," Clark said, describing London's banking expertise as an asset "any other country would kill to have."

The sector, which contributes around 12 percent of GDP, is nervous about what access it will have to the EU's financial markets, with many calling for a clear transitional arrangement to soften the blow of leaving, or eyeing a shift overseas.

However, Clark said it was too soon in the negotiating process, which Britain has said it will formally begin by the end of March next year, to talk about a transitional deal.

MANUFACTURING BOOST

Hammond used the Autumn Statement to put a rebirth of British manufacturing at the center of his plans to weather the Brexit storm, spending his limited funds on a manufacturing-focused 23 billion pound ($28 billion) fund to boost productivity by investing in infrastructure.

Much of that spending will be dictated by the Industrial Strategy, due to be outlined in the coming weeks, which is seen as both an economic necessity to boost productivity and a political manoeuvre to re-engage with disillusioned low-income workers, many of whom voted for Brexit.

Clark rejected the idea that financial services could suffer as a result of the government's new-found focus on manufacturing, but said there would need to be an economic rebalancing.

"There is a rebalancing of the economy in a sense that we want to have some of the prosperity that financial services enjoyed, London enjoyed, extended to other parts of the country and to other sectors," Clark said.

But, he said he wanted to "maintain, in fact to increase, the strength of the competitiveness of financial services and of London."

"They are assets that any other country would kill to have. We are going to have them very prominent in our industrial strategy."

(Reporting by William James; editing by Stephen Addison)