FTSE falls further on ex-divs, company downgrade

* FTSE 100 index falls 0.4 percent

* Diageo (LSE: DGE.L - news) , easyJet down as trade ex-divs

* United Utilities (LSE: UU.L - news) hurt by Morgan Stanley (Berlin: DWD.BE - news) downgrade

By Atul Prakash

LONDON, Feb 26 (Reuters) - Britain's top share index fell for a second straight session on Wednesday, with Diageo and easyJet falling after trading without their latest dividend entitlements and United Utilities hurt by a downgrade from Morgan Stanley.

Diageo and easyJet fell 1.5 percent and 0.8 percent respectively as investors will no longer qualify for the latest dividend payout. According to Reuters calculations, the effect of the resulting adjustment to prices by market-makers have taken 2.7 points off the FTSE index.

United Utilities dropped 1.7 percent, with traders citing a Morgan Stanley note downgrading the stock to "equal weight" from "overweight" and dropping the company from its "Europe Best Ideas" list.

The blue-chip FTSE 100 index was down 0.4 percent at 6,803.72 points by 0905 GMT following a drop of 0.5 percent in the previous session, further retreating after closing at its highest level in 14 years on Monday.

"Investors have become cautious as they think the market is due for a correction after rising too far, too fast. They are waiting for some catalysts before pushing the FTSE 100 towards record highs," Tom Robertson, senior trader at Accendo Markets, said, adding the market focus will be on UK GDP figures.

"If we test 6,850, then we could be set for higher highs and the next target would be the all time high of 6,950.60. But if we fail to break through the 6,850 level in the near-term, the market would become vulnerable to more profit taking."

The FTSE 100 also came under pressure due to a sharp decline in ITV (LSE: ITV.L - news) shares after a special dividend of 161 million pounds ($268 million) following a 9 percent rise in 2013 external revenues by Britain's largest free-to-air broadcaster failed to cheer investors.

"The update was good, but (shares are) down on the basis of no major upgrades and a special dividend that could have been higher," a London-based trader said.

Bucking the trend, engineering firm Weir Group (Frankfurt: 42W.F - news) rose 4.2 percent after saying it expected to return to growth this year by focusing on a possible rise in customers' upstream investments in North America and the Middle East.