Britain's FTSE edges lower; HSBC, Tesco hurt by share sales

* FTSE 100 down 0.1 pct

* HSBC, Tesco (Xetra: 852647 - news) hit as key shareholders cut stakes

* New York stock market closed for public holiday

* ITV (LSE: ITV.L - news) hits 13 1/2-year high on bid speculation

* BAE Systems (LSE: BA.L - news) boosted by BofA ML upgrade -traders

By Tricia Wright

LONDON, Sept 1 (Reuters) - Britain's top equity index edged lower on Monday, led by losses at HSBC and Tesco after key shareholders sold stakes in the two companies.

HSBC knocked 5.4 points off the UK benchmark, accounting for all of its fall, after one of Britain's best-known fund managers, Neil Woodford, said he had sold his fund's stake in the banking group. He cited concern over the effect on the bank of several industry-wide investigations.

"In particular, I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties," Woodford said in a blog posting on his fund's website.

Woodford - who left Invesco Perpetual earlier this year to set up his own company - said a substantial fine could hamper HSBC's ability to increase its dividend. CF Woodford Equity Income Fund had 2.68 percent of its assets in HSBC shares at the end of July, according to the fund's factsheet.

Tesco shed 2 percent following a 6.6 percent drop on Friday when it cut its dividend after its second profit warning in two months.

Tesco took another hit on Monday after Harris Associates, one of its largest shareholders, sold around two-thirds of its stake in the company. The decline in its share price also pulled down rivals such as J Sainsbury and Wm Morrison .

"There is negative pressure building up on Tesco's shares. The dividend is going to become an issue and there is pressure on the management to review its strategy, because it's clearly not working," Beaufort Securities sales trader Basil Petrides said.

The FTSE 100 index was down by 5.64 points, or 0.1 percent, at 6,814.11 by 1409 GMT. Trading volumes were only at 42 percent of their 90-day daily average heading into the close, with New York closed for a public holiday.

The FTSE 100 reached a peak of 6,894.88 points in mid-May, its highest in more than 14 years. But it has not yet passed the 6,900 point mark, considered a key hurdle before the FTSE can challenge record highs around 7,000 points.

Although the FTSE and other European stock markets have been propped up in recent months by expectations of new economic stimulus measures from the European Central Bank, some traders were wary about betting on big near-term gains.

"I would look to sell into rallies at the moment," said Berkeley Futures' associate director Richard Griffiths.

Among brighter spots, talk of a takeover from Virgin Media owner Liberty Global (NasdaqGS: LBTYA - news) sent ITV's shares to their highest since Jan. 2001, up 3.1 percent.

The speculation was fuelled by a report in The Telegraph saying Liberty was canvassing support from major ITV shareholders following its acquisition of a 6.4 percent stake. ITV declined to comment on the rumours.

Meanwhile, BAE Systems advanced 2.9 percent, with traders citing the effect of a BofA Merrill Lynch upgrade of the defence company to "buy" from "underperform". (Additional reporting by Sudip Kar-Gupta; Editing by Larry King)