The FTSE 100 is down 27.9 points, or 0.42%, to 6,575.8 in early trading, ahead of this week's interest rate decision by the Monetary Policy Committee.
Royal Bank of Scotland Group is the biggest loser in early trading following a share split which has pushed the stock down to 657p, while the company also confirmed a proposal put to ABN Amro to buy LaSalle Bank was rejected over the weekend, leading to fears of a long drawn-out legal battle.
3I Group is also down 2.79% to £11.51, closely followed by BHP Billiton which has slipped 1.97% to £11.94, while Hanson has dropped 1.87% to £10.51, and Detica Group has declined 1.59% to 385.75p.
However, Reuters Group is leading a rally with gains of 3.45% to 637p, as it confirmed it is in talks with Thomson, while Morrison Supermarkets has climbed 3.42% to 340.5p, on rumours of private equity interest.
Tate & Lyle has advanced 2.02% to 656p, closely followed by miner Rio Tinto which has advanced 1.84% to £33.71, while pub operator Mitchells & Butlers has climbed 1.57% to 841p.
In Japan, the Nikkei 225 Stock Average declined 12.99, or 0.1%, to 17,656.84, led by carmakers on speculation profits will be curbed by slower growth at home and abroad this year.
Honda fell 20 yen, or 0.5%, to 4,090, as it had 55% of its sales in North America in the year ending March 2006, while Toyota, the world's largest carmaker by value, dropped 30 yen, or 0.4%, to 7,240, while Suzuki slumped 130 yen, or 3.8%, to 3,320.
Kansai Electric, Japan's second-biggest utility, dropped 80 yen, or 2.5%, to 3,180, while Tokyo Electric, Asia's biggest power producer, lost 50 yen, or 1.3%, to 3,880, after it announced a 70 yen dividend for the fiscal year ending March 31.
Canon, the world's No. 1 digital camera maker, fell 30 yen, or 0.4%, to 7,060, while Mitsubishi UFJ Nicos surged 45 yen, or 14%, to 375, and Orient jumped 8 yen, or 4.4%, to 190.
Elsewhere, Mitsubishi UFJ Financial Group advanced 30,000 yen, or 2.3%, to 1.32 million, while Sumitomo Mitsui Financial Group rose 20,000 yen, or 1.9%, to 1.08 million, Hitachi Metals surged 98 yen, or 7.3%, to 1,437, and Astellas Pharma lost 50 yen, or 1%, to 5,180 yen.
In the US yesterday, the Dow Jones Industrial Average rose 48.35 points, or 0.36%, to 13,312.97, hitting a new record high for the fifth session in a row on bid speculation.
Alcoa posted the biggest gains with a rise of 8.33% to $38.63, on reports it has launched a $27bn hostile bid for Canadian rival Alcan, while United Technologies climbed 1.54% to $69.05.
Drug company Pfizer added 1.11% to $27.38, closely followed by American International Group which gained 1.06% to $71.60, while Boeing advanced 1.01% to $94.56, although gains were limited by McDonald’s which slipped 0.84% to $49.50.
General Motors was the biggest loser with a fall o f 2.46% to $30.12, closely followed by Honeywell International which dropped 1.41% to $55.33, while Caterpillar slipped 0.59% to $72.67, and Procter & Gamble fell 0.37% to $62.18.
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