G4S drops as Britain's FTSE sinks to 1-month low

* FTSE 100 down 0.7 pct, around 1-month low

* G4S (LSE: GFS.L - news) sinks; agrees settlement with British government

* Ex-dividends take around 20 points off index

By Tricia Wright

LONDON, March 12 (Reuters) - Britain's top share index fell to a one-month low on Wednesday, led down by G4S after the security firm agreed a settlement with the government over an offenders' tagging scandal.

G4S sank 5.1 percent in brisk trade after agreeing to repay 108.9 million pounds ($181 million) to the British government after overcharging it on a contract to tag criminals.

The repayment, much higher than the 24 million pounds G4S (Copenhagen: G4S.CO - news) offered in November, came as G4S posted annual profits below market forecasts and outlined a raft of heavy charges, with analysts saying they expected 2014 profit forecasts to be cut.

"Reading between the lines through their statement today it looks like 2014 will ... be another challenging year," Vinay Sharma, trader at Gekko Global Markets, said.

"A break below the year-to-date low of 226 pence could spark a wave of selling pressure down to the low seen last summer at 203 pence."

Trading volume in G4S - currently trading at 233 pence - came to almost three times its 90-day daily average, while the blue-chip FTSE 100 index saw only its regular daily volume.

The UK benchmark, which had already fallen in the last three sessions, was down 48.81 points, or 0.7 percent, at 6,636.71 points by 1552 GMT.

Falls in the value of stocks trading without the attraction of their latest dividend, including major banks HSBC and Standard Chartered (HKSE: 2888.HK - news) , also took their toll on the FTSE 100, knocking some 20 points off the index.

Although the British stock market has been propped up by a gradual recovery in the economy, some traders expected the FTSE to remain under pressure in the near-term, with the index down 1.7 percent since the start of 2014.

"The UK market remains vulnerable ... Unlikely that we have seen the last of this and my preference would be to sell rallies," Lex van Dam, hedge fund manager at Hampstead Capital, said.

Barclays Capital analyst Lynnden Branigan saw scope for the benchmark, which has this week fallen below both its 50-day and 100-day moving averages, to drop down to its 200-day moving average, at 6,578, "within the next five days, for sure".

"There is a risk of a squeeze below, towards perhaps 6,500," he said.

The FTSE 100 rose 14.4 percent in 2013 to record its best annual gain since 2009. It also reached peaks that marked its highest level in around 13 years in early January this year.