Britain's FTSE slips as prospect of Smith & Nephew takeover fades

* FTSE 100 down 0.1 pct

* Medtronic (NYSE: MDT - news) buys Covidien (NYSE: COV - news) , quashing SN deal hopes

* Market extends last week's fall

* Commodity stocks support as Iraq concerns mount

By Alistair Smout

EDINBURGH, June 16 (Reuters) - Britain's top share index edged lower on Monday, weighed down by weakness in Smith & Nephew as hopes faded for a takeover of the the medical technology company.

Smith & Nephew (LSE: SN.L - news) fell 2.7 percent, the biggest decline in the FTSE 100, after Medtronic, the world's largest standalone medical device maker, agreed to buy Dublin-based Covidien Plc for $42.9 billion and relocate to Ireland (Other OTC: IRLD - news) , to seek a lower corporate tax rate.

Earlier this month, Bloomberg reported that Medtronic was in the running to buy Smith & Nephew, which specializes in hip and knee implants, in a move to help lower its taxes.

The news comes after Stryker (Berlin: SYK.BE - news) ruled out a bid for the firm, which gained a third between April and June on the prospect of a takeover.

"If someone thought Smith & Nephew were a decent takeover target, then this just takes another interested buyer out of the market," said Toby Morris, senior sales trader at CMC Markets. "We've seen a couple of deals that haven't materialised, and if you've got people hanging on for these rumours and there isn't anything else on the horizon, it's a good time to get out of them."

Smith & Nephew led declines on the FTSE 100, which fell 7.91 points, or 0.1 percent, to 6,769.94, extending last week's loss of 1.2 percent.

Last week's drop was prompted by a surge in sterling after Bank of England Governor Mark Carney said that interest rates may rise sooner than expected, and as tension built over renewed unrest in Iraq.

Brent crude oil rose over $113 dollars a barrel on Monday as Sunni insurgents advanced in Iraq, boosting heavily weighted commodity stocks even as the majority of shares came under pressure.

"The price reflects the deteriorating security situation in Iraq," strategists at UBS (Xetra: UB0BL6 - news) said in a note. "At present, there is no new significant impact to oil supply (either in northern Kurdistan or to the giant fields in southern Iraq) but with Libyan production almost at a halt, the market is understandably cautious." (Reporting by Alistair Smout; Editing by Larry King)