LONDON (Reuters) - Plans by Stryker (>> Stryker Corporation) to launch a new $2 billion (1.3 billion pounds) share buyback programme punctured hopes the U.S. surgical implant firm would bid for rival Smith & Nephew (>> Smith & Nephew plc), sending shares in the British group some 5 percent lower on Tuesday.

"It probably tells you that the prospect of a deal has receded," said one analyst as the stock staged its sharpest one-day drop in four years.

Smith & Nephew, which has a market value of around $16 billion, is a perennial target of takeover talk. It is a relatively small player in a consolidating healthcare sector and Stryker has long been seen as a likely acquirer.

The U.S. company formally declared last May that it was not working on a takeover offer, following earlier reports of its interest, which meant that under British takeover rules it could not make a bid for another six months.

The Smith & Nephew share price fall echoes a similar situation with AstraZeneca (>> AstraZeneca plc) last October, when a decision by Pfizer (>> Pfizer Inc.) to approve a new buyback programme deflated bid hopes surrounding the British drugmaker.

Stryker Chief Executive Kevin Lobo said his company was committed to a capital allocation strategy that included acquisitions, dividends and share repurchases.

"While M&A activity across the breadth of our product and service offerings will remain the primary focus of our long-term growth strategy, this new authorisation recognises that the strength of our balance sheet is sufficient to enable more significant share repurchases," he said in a statement.

Smith & Nephew also announced a small deal on Tuesday to buy its distributor in Colombia, following similar deals in Brazil, Turkey and India. Financial terms of the acquisition of EuroCiencia Colombia were not disclosed.

(Reporting by Ben Hirschler and Vikram Subhedar; editing by Susan Thomas)