Small cap Imagination Tech soared after a buyout fund agreed to buy the chip designer.

The blue chip FTSE 100 <.FTSE> index fell 0.1 percent to 7,301.29 points, underperforming a slightly positive European market following the result of the German general election.

While Chancellor Angela Merkel won a fourth term in office, the result pointed to a potentially fragile coalition.

Falls among British financials such as HSBC (>> HSBC Holdings), Barclays (>> Barclays) and Lloyds (>> Lloyds Banking Group) took the most points off the index as investors scaled back their exposure to risky assets.

Cyclical mining stocks also pulled back, with Rio Tinto (>> Rio Tinto), Anglo American (>> Anglo American) and BHP Billiton (>> BHP Billiton Plc) all down more than 1 percent due to a weaker copper price.

Oil heavyweights Royal Dutch Shell and BP (>> BP) reversed earlier losses after Brent crude oil prices rose to their highest level since July 2015.

Recent strength in sterling and a more hawkish tone from the Bank of England have put pressure on UK equities, as the more internationally-exposed blue chips had benefited from an accounting boost thanks to a plunge in the pound in the immediate aftermath of last year's Brexit vote.

"We are underweight UK equities against European equities at the moment which is largely due to what we are seeing (as) a convergence in earnings growth," Maximilian Kunkel, Chief Investment Officer for Germany, UBS Wealth Management, said.

"We've recently seen very, very strong earnings growth in the UK largely helped by the weakness of the pound, and relatively strong local growth also – we think that that is going to revert," Kunkel added.

Among individual stock moves, a price target cut from Jefferies weighed on shares in Mediclinic (>> Mediclinic International), which fell around 5 percent, with analysts saying that they expected Mediclinic's upcoming update to disappoint the market.

Moves were more pronounced among smaller UK firms, with shares in mid cap Tullow Oil (>> Tullow Oil) jumping 7.1 percent after the oil producer said that expected to resume drilling at its TEN fields following an international ruling on an ocean boundary between Ghana and Ivory Coast.

Imagination Technologies (>> Imagination Technologies Group plc) scored its best day since June 2009, shooting 28 percent higher after Canyon Bridge Capital Partners said that it would buy the British firm.

Imagination Technologies saw its shares slump more than 60 percent earlier this year after it was ditched by Apple , its biggest customer.

"The bid price of 182p looks a good outcome considering the underlying business is structurally unprofitable without Apple royalties," analysts at Investec said in a note.

(Reporting by Kit Rees, additional reporting by Danilo Masoni,editing by Jeremy Gaunt)

By Kit Rees