Smith & Nephew slump knocks FTSE back from record high

* Blue-chip FTSE 100 index falls 0.5 percent

* Stryker buyback implies deal for S&N off - traders

* Barclays (LSE: BARC.L - news) , Glencore (Xetra: A1JAGV - news) slip after updates (Adds details, quote)

By Alistair Smout and Atul Prakash

LONDON, March 3 (Reuters) - Britain's blue-chip share index gave up early gains for a third straight session on Tuesday to drop back from record highs, led lower in mid-session trading as M&A hopes for Smith & Nephew (LSE: SN.L - news) dissipated.

Smith and Nephew slumped 5.2 percent to 1,137p after U.S. firm Stryker announced a $2 billion share buyback programme, making it increasingly unlikely they would consider a bid for the UK medical equipment firm, traders said.

The slump saw it hit its lowest level since late December, when it leapt nearly 8 percent on media reports that a bid for Smith and Nephew would be made.

"The fact that the U.S. companies are no longer looking to British shores for takeovers takes a lot of value of UK firms like Smith & Nephew," said Jasper Lawler, market analyst at CMC Markets.

"Some sort of deal had been priced into the stock and it could fall back towards 900p now, unless we get news that the deal is still on."

Glencore and Barclays also weighed on the market after earnings releases.

Barclays fell 2.8 percent after saying it had set aside an extra 750 million pounds ($1.15 billion) for potential fines arising from allegations of manipulation in the foreign exchange market. Its annual profits rose 12 percent thanks to a sharp cut in costs.

"The additional foreign exchange provision is unwelcome, whilst other regulatory discussions which may lead to further fines lurk in the background," said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

Glencore fell 2.8 percent after the miner and commodity trader took an impairment charge of $1.1 billion on lower commodity prices. It posted a 2 percent fall in 2014 core profit.

The blue-chip FTSE 100 index was down 32.24 points, or 0.5 percent, at 6,908.40 points by 1457 GMT, trading just below a new record high of 6,974.26 points set in the previous session.

Analysts said the index would need to consolidate after breaking through to the new record highs a week ago.

"The lack of conviction in the market is a bit of a worrying sign," said Fawad Razaqzada, technical analyst at Gain Capital (NYSE: GCAP - news) , adding that 6,900, the resistance level last month and in September 2014, was now a key support level.

"Unless the 6,900 support level is broken, this should just be a consolidation before we push on towards 7,000." (Editing by Gareth Jones)