By Tricia Wright
LONDON (Reuters) - Britain's top shares drifted further away from multi-year highs on Thursday, with investors reluctant to place bets before a European Central Bank meeting, which is expected to yield fresh monetary easing.
Medical technology company Smith & Nephew (L:SN) bucked the slightly weaker market, rising 4.2 percent in brisk trade on reports that U.S. medical device maker Medtronic (N:MDT) is looking at a takeover of London-based Smith & Nephew. Smith & Nephew declined to comment.
"Smith & Nephew's always had a lot of bid speculation around it; it's a swirling long-term story. I don't know whether this is going to happen; it seems to be a lot like the famous Pfizer/AstraZeneca (bid story) - the deal probably makes sense but there's an added tax benefit to Medtronic if they manage to do it," Joe Rundle, head of trading at ETX Capital, said.
"I think (Smith & Nephew) probably will go higher from here; there probably will be a firm bid of some kind, but I’m not sure it will actually complete."
Trading volume in Smith & Nephew was 1-1/2 times its 90-day daily average after only an hour's trade. Turnover on the broader FTSE 100 N:FTSE was just 7 percent of its average.
The index was down 16.48 points, or 0.2 percent, at 6,802.15 points by 0756 GMT, trading just over 1 percent shy of a peak hit last month of 6,894.88 - its highest level since December 1999, when it set a record peak of 6,950.60 points.
The ECB, at its meeting on Thursday, is expected to cut its main interest rate and impose negative interest rates on overnight deposits, aiming to prompt banks to lend instead and to prevent the euro zone from slipping into Japan-like deflation. It is also expected to launch a long-term refinancing operation targeted at businesses.
But with these measures seen as already priced into equity markets, any disappointment could result in a pullback.
"I'm slightly nervous actually," said Peel Hunt equity strategist Ian Williams.
"People are expecting a rate cut plus a lending measure plus some kind of comments about QE (quantitative easing), or whatever the next step may be if inflation continues to undershoot. If we don't get that ... potentially we are a bit vulnerable."
Miners N:FTNMX1770 proved a drag on the FTSE 100, dropping 0.7 percent after data showed growth in top metals consumer China's services sector retreated to a four-month low in May.
(Additional reporting by Paul Sandle; Editing by Susan Fenton)