By Francesco Canepa
LONDON (Reuters) - Healthcare shares pushed Britain's main equity index lower on Tuesday as new U.S. tax rules dented the takeover appeal of companies such as Shire (L:SHP) and AstaZeneca (L:AZN) for U.S. suitors.
Market sentiment was also depressed by surveys showing French business activity contracting again in September and Germany's manufacturing sector growing at its slowest pace since June 2013, casting a shadow over the euro zone's recovery prospects.
The U.S. Treasury Department announced new rules, effective immediately, which will reduce the tax benefits available to companies which strike tax "inversion" deals. Such deals allow firms to escape high U.S. taxes by reincorporating abroad.
Britain's more favourable tax regime has been a key factor fuelling U.S. takeover interest in London-listed companies, particularly in the healthcare sector.
Drugmaker Shire, which is being acquired by the United States' AbbVie's (N:ABBV), tumbled 6 percent. AstaZeneca, which turned down a bid from Pfizer (PFE) earlier this year, fell 5 percent and medical devices manufacturer Smith & Nephew Plc (L:SN), also tipped as a U.S. bid target, shed 3.5 percent.
Overall, the healthcare sector knocked 23 points off the FTSE 100 (FTSE), which was down 50.39 points, or 0.7 percent, at 6,723.24 points at 0637 GMT.
The index had closed down 64.29 points on Monday, extending its retreat from this month's 14-1/2 year high of 6,904.86.
"I think we're going to be treading water around here for a bit," said Mark Ward, head of execution trading at Sanlam Securities UK, adding that he saw the index hovering in the 6,720-6,730 area.
"I can see a bit of weakness but I can't see it going through the floor."
Mid-cap sweetener maker Tate & Lyle (L:TATE) fell 16 percent after it said its annual profit would be hit by significant disruption to its supply chain and increased competition for its Splenda sucralose sweetener.
(Reporting By Francesco Canepa; Editing by Gareth Jones)