Britain's top shares closed lower on Monday, with broadcaster ITV leading the way down as hopes of a bid for the media group faded, while banks suffered after quarterly profits at Citigroup missed analyst estimates. Barclays was the biggest casualty, down 1.3 percent. Dealers said sentiment towards the stock was being hit as investors compared its fixed-income business to that at Citigroup, where the US bank reported a slump in trading revenues.
Cable & Wireless was one of just 20 blue chips which ended higher as sources said the telecoms firm was in early-stage talks to buy privately owned rival Energis.
"It is possible that the deal could be significantly earnings enhancing to C&W," said Investec analyst Christian Maher. C&W shares ended up 2.4 percent.
The overall market slipped, leaving the FTSE 100 index down 16.6 points at 5,214.2 - retreating for a second straight session from last week's 39-month high.
"I've been expecting just a little bit of consolidation for a while because the market has done very well. A correction of some sort, a pause or hesitation, is overdue," said Mike Lenhoff, a strategist at private client fund manager Brewin Dolphin.
"But the underlying tone is still very firm and unless Wall Street falls out of bed, which I don't think it's going to, then I think these markets are well supported."
New York's Dow Jones index was down 23 points by the London close, hurt by Citigroup's results, although analysts said a drop in oil prices helped to limit losses.
Merger speculation swirled through a number of sectors, including the media industry where ITV fell 3.4 percent after a press report that private equity firm Apax and media giant Time Warner were deterred from bidding for ITV due to concern about its pension fund deficit.
Dashed bid hopes also contributed to a 2.2 percent drop in the share price of Kingfisher, owner of do-it-yourself chain B&Q.
Rumours earlier in July suggested plumbing and heating supplier Wolseley might bid for Kingfisher. But Wolseley's finance director said recent acquisitions were aimed at expanding its professional tradesman business, rather than the DIY business.
On the upside, consumer goods maker Unilever got a 0.6 percent lift after European regulators approved Procter & Gamble's purchase of Gillette, raising hopes of more take-over activity in the sector, dealers said.