They offset a boost from mergers & acquisitions speculation in the beverages sector, which saw shares in SABMiller up 8.7 percent on the back of a report about takeover interest from larger rival Anheuser-Busch InBev.

Energy firms BP and BG were the biggest drags on the FTSE 100, with peer Royal Dutch Shell not far behind, as Brent crude slumped to its lowest in more than two years, below $97 (59.6739 pounds) per barrel.

The fall came after lacklustre economic data from China cast a shadow over the outlook for oil demand at a time of abundant supply, threatening the profits of companies which make money selling oil and gas.

"Most of the big oil companies have their strategic targets based around $100 a barrel so we’re still in that ballpark but it’s all dependent on the duration (of the current oil price weakness)," Investec energy analyst Neill Morton said.

"Psychologically, as far as the market is concerned, $99 can be closer to $90 than to $100."

Adding to a gloomy sentiment on the sector, the United States banned Western firms from supporting the activities of a number of Russian companies in oil exploration or production from deep water, Arctic offshore or shale projects.

BP, which owns 20 percent of Rosneft, Russia's largest oil producer, fell 1 percent, while Royal Dutch Shell, whose projects are among those that will have to be put on hold, dropped 0.5 percent.

Energy shares shaved 10 points off the FTSE, which was down 10.72 points, or 0.2 percent, at 6,796.24 points at 1348 GMT (02:48 p.m. BST), extending its retreat from this month's 14-year high.

Bill McNamara, technical analyst at Charles Stanley, saw 6,756 - the FTSE 100's 50-day moving average and the level at which it will have retraced 38.2 percent of its recent advance - as a short-term support level.

M&A BRIGHTENS MOOD

Brightening an otherwise gloomy market - hit too by concerns about the Scottish referendum and the prospect of a tightening of U.S. monetary policy - were signs of deal activity.

SAB Miller hit an all-time high in volume nearly six times its average for the past three months after a report in the Wall Street Journal said that AB Inbev was talking to banks about financing a possible $122 billion (75.05 billion pounds) takeover bid.

Dutch brewer Heineken said on Sunday it was approached by SABMiller about a potential takeover, but that its controlling shareholder intended to keep the company independent.

"There's obviously going to be further consolidation in there ... I think the whole of the beverage sector will be a good bet," said Joe Rundle, head of trading at ETX Capital.

Tour operator TUI Travel and majority owner TUI AG meanwhile agreed the terms of a merger creating the world's largest leisure and tourism group with a combined value of 6.5 billion euros. TUI Travel rose 1.9 percent.

(Additional reporting by Tricia Wright; Editing by Toby Chopra)

By Francesco Canepa