* FTSE 100 down 0.3 percent

* Lloyds falls; delays dividend prospect after mis-selling charge

* Reckitt up on talk of move for Merck (Other OTC: MKGAF – news) unit

By Tricia Wright

LONDON, Feb 3 (Reuters) – Britain’s top shares inched lower on Monday, extending recent hefty falls, led down by Lloyds Banking Group.

Lloyds fell 2.4 percent after it said it had set aside a further 1.8 billion pounds ($ 2.96 billion) in the fourth quarter to compensate customers mis-sold payment protection insurance (PPI), and dividend payouts were to come later than some in the market had anticipated.

“Continued higher-than-expected PPI claims – now elongated to an extent than surprised me – and the resumption of dividend payments moved back later than expected has certainly taken the shine of the stock,” said Jordan Hiscott, sales trader at Gekko Global Markets.

However, he said the 100-day moving average, currently at 77.8, could act as support – noting that Gekko’s client base is using Monday’s weakness in the shares, now trading at 81.3 pence, as a buying opportunity.

Consumer goods company Reckitt Benckiser (Xetra: A0M1W6 – news) , however, rose 1.9 percent, one of the biggest boosts to the FTSE 100, with traders citing speculation the maker of Nurofen pain relief tablets may make a move for Merck (Dusseldorf: 6MK.DU – news) & Co’s consumer healthcare (CH) business.

“We believe the acquisition of Merck’s OTC (Brussels: OTCB.BR – news) /CH assets would … be very attractive to RB (Reckitt Benckiser),” analysts at Bernstein wrote in a note.

“We estimate this would push RB up from global #9 to #3 in CH and would result in RB becoming the global leader in Cough, Cold and Allergy.”

The FTSE 100 was down 21.01 points, or 0.3 percent, at 6,489.43 points by 0924 GMT, having dropped 0.4 percent on Friday. It fell 3.5 percent in January, its biggest monthly decline since last June and its worst January since 2010.

After an encouraging start to the year, which saw the UK benchmark post gains in the first two weeks, equity markets took a turn for the worse as unease about slowing Chinese growth and the withdrawal of U.S. monetary stimulus spread from emerging market currencies to the world’s big stock markets.

Alongside the emerging market worries, investor concern has focused on the current earnings season, and whether it will result in profits strong enough to justify lofty valuations after a bumper 2013.

While Monday was quiet on the earnings front, there are plenty of releases later on in the week – from the likes of oil majors BG and BP (LSE: BP.L – news) , drugmakers AstraZeneca (EUREX: AZNF.EX – news) and GlaxoSmithKline (Other OTC: GLAXF – news) , and mobile phone group Vodafone .

Vodafone is set to become one of the latest high profile victims of the chaos engulfing the emerging economies of Africa and Asia, readying itself for a big slide in its overseas revenues, weekend press reports said.

“(Earnings have) been particularly ropey in the UK,” Peel Hunt equity strategist Ian Williams said.

“I think one or two investors have realised that valuations are at the top end of that recent range and you can’t afford the number of disappointments on the trading front which we still appear to be getting,” he said.

The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.3 times, against its 10-year average of 11.9 times, Thomson Reuters Datastream shows.

Of the 17 percent of European companies to have reported so far, 44 percent have missed profits expectations, while 46 percent have missed expectations on revenue, Thomson Reuters (Frankfurt: TOC.F – news) Starmine data shows.