Oil retreat takes wind out of sails of European rally, M&A in focus

LONDON, July 4 (Reuters) - Retreating crude prices removed a key driver of European stocks' buoyant start to the month on Tuesday, leading them lower as a spate of dealmaking news moved individual stocks.

The pan-European STOXX 600 fell 0.4 percent by 0720 GMT, in line with a dip in Euro zone stocks and blue-chips. Britain's FTSE was 0.5 percent lower.

European shares had their strongest day since the first round of the French presidential election on Monday, buoyed by a rally in crude prices and strong banking stocks.

But basic resources and banks were among the worst performers on Tuesday, while oil and gas stocks fell 0.3 percent.

Dealmaking returned with a vengeance as a key driver of individual share moves.

EDP was a top gainer, up 3.8 percent after Spain's Gas Natural (Frankfurt: 38G.F - news) approached the Portuguese utility for a $40 billion merger which would create Europe's fourth biggest utility by market capitalisation and could spur further consolidation in the utility sector.

Gas Natural shares, meanwhile, fell 0.6 percent at the open. Shares (Berlin: DI6.BE - news) in French rival EDF (Paris: FR0010242511 - news) also dropped 2.5 percent.

Clariant (IOB: 0QJS.IL - news) shares gained 3.9 percent after two activist investors upped their stake in the Swiss chemicals firm in order to ramp up pressure on shareholders to oppose a planned merger with U.S. firm Huntsman.

Baader Helvea analysts said the move could make a counterbid more likely.

And the prospect of suitors Bain and Cinven getting regulatory approval for a renewed offer for Stada sent the generic drugmaker's shares up 3 percent.

Elsewhere, Worldpay jumped 7.1 percent. Its rival Nets (Stuttgart: 2N1.SG - news) confirmed on Monday it had been approached by potential buyers. (Reporting by Helen Reid, Editing by Kit Rees)