* FTSE 100 down 0.3 percent

* AstraZeneca (NYSE: AZN – news) dives after rejecting Pfizer (NYSE: PFE – news) offer

* Airlines buoyed by Ryanair results

By Tricia Wright and Alistair Smout

LONDON, May 19 (Reuters) – Britain’s top shares fell on Monday, dented by a sharp drop in pharmaceutical firm AstraZeneca after it rejected rival Pfizer’s higher takeover bid.

AstraZeneca dived 10.5 percent after turning down Pfizer’s 55 pounds/share take-it-or-leave-it offer.

That steep decline was the biggest drag on the FTSE 100 by some margin and pulled the index down 17.58 points, or 0.3 percent, to 6,838.23 points by 1437 GMT.

AstraZeneca had risen more than 27 percent in the month since the first Pfizer bid was reported, and traders said that a deal was now unlikely after Pfizer appeared reluctant to engage in a hostile approach.

“With Pfizer saying they won’t go hostile, it looks like it is pretty much dead,” Will Hedden, sales trader at IG (LSE: IGG.L – news) , said.

“The rhetoric from certain government sections about securing jobs in the UK will have been a hurdle and certainly put off AstraZeneca shareholders.”

Recent price moves had left AstraZeneca trading at a forward price/EPS multiple of 19.5, according to StarMine data, compared to 15.5 for GlaxoSmithKline (Other OTC: GLAXF – news) and 14.3 for Sanofi (NasdaqGM: GCVRZ – news) , and over double its 10-year median of 9.3.

But following Monday’s share price pull-back, Citi took the opportunity to add AstraZeneca to its Focus List Europe.

It reckoned the market still under-appreciated AstraZeneca’s portfolio in both immune-oncology and the management of auto-immune related disease.

The FTSE 100 retraced some of the previous week’s 0.6 percent gain, which saw it touch 14-year highs. On Thursday it came within 0.8 percent of all-time highs set in December 1999.

“With the FTSE 100 close to all-time-high territory, concerns have once again been raised in relation to valuation, which is creating something of a headwind,” said Jeremy Batstone-Carr, analyst at Charles Stanley (LSE: CAY.L – news) .

In common with AstraZeneca, the broader market is also trading above long-run average valuations. The FTSE 100 trades at a price to earnings ratio of 13.8, compared to a 10-year average of 11.8, Thomson Reuters Datastream showed.

Among the top risers were airlines easyJet, up 4 percent, and International Consolidated Airlines, up 2.7 percent, as forecast-beating results from Irish peer Ryanair buoyed the sector.

Both easyJet and International Consolidated Airlines succumbed to profit taking in recent sessions – down 10 percent and 6.9 percent respectively last week – as investors cashed in profits on powerful rallies seen over the last 12 months. (Editing by Sophie Walker)