* FTSE 100 drops 1.4 percent

* Heavyweight drug sector down 2.5 pct on U.S. tax rules

* Supermarkets hit by Kantar data

* Tate Lyle down 17.1 pct after profit warning

By Tricia Wright and Francesco Canepa

LONDON, Sept 23 (Reuters) – Britain’s top shares fell on
Tuesday, dragged down by healthcare shares as new U.S. tax rules
dented the takeover appeal of companies such as Shire
and AstraZeneca.

Market sentiment was also depressed by surveys showing
French business activity contracting again in September and
Germany’s manufacturing sector growing at its slowest pace since
June 2013, casting a shadow over euro zone recovery prospects.

The U.S. Treasury Department announced new rules, effective
immediately, which will reduce the tax benefits available to
companies which strike tax “inversion” deals. Such deals allow
firms to escape high U.S. taxes by reincorporating abroad.

Britain’s more favourable tax regime has been a major factor
fuelling U.S. takeover interest in London-listed companies,
particularly in the healthcare sector.

“This is a big impact and certainly it will put a cap on a
lot of MA or takeover activity … If you look over the last
few months a lot of what has been driving the FTSE has been this
MA activity,” IG analyst Brenda Kelly said.

The FTSE 350 Healthcare sector index fell 2.5
percent and has risen about 20 percent this year, outpacing all
other sectors in the large-cap FTSE 350 index.

Drugmaker Shire, which is being acquired by AbbVie’s
, fell 2.1 percent. AstraZeneca, which turned down a bid
from Pfizer this year, fell 3.2 percent and medical
devices manufacturer Smith Nephew Plc, also tipped as a
U.S. bid target, shed 2.9 percent.

The broader FTSE 100 was down 91.69 points, or 1.4
percent, at 6,681.94 points by 1510 GMT, falling further from
this month’s 14-1/2 year high of 6,904.86.

Elsewhere among the worst-performing blue-chip stocks,
supermarket retailers were hit by data from market researcher
Kantar Worldpanel which showed Britain’s grocery market grew at
its slowest rate for more than 20 years over the last 12 weeks.

Tesco extended hefty falls seen on Monday when the
world’s No. 3 retailer cut its profit forecast for the third
time in two months after finding a fault in its accounts.

Its shares fell 4.3 percent to their lowest levels in more
than a decade, with Sainsbury’s 5.4 percent lower.

Mid-cap sweetener maker Tate Lyle fell 17.1
percent after it said its annual profit would be hit by
significant disruption to its supply chain and increased
competition for its Splenda sucralose sweetener.

While this marks the second high-profile profit warning in
Britain this week, analysts saw these as isolated events that
had little broader market significance.

“Tate with its sucralose market and Tesco with its
accounting issues — they are very, very stock specific and I
don’t think there’s necessarily a big read-across to the
performance of the UK corporate sector on the back of those two
announcements,” said Exane BNP Paribas global head of equities
strategy, Ian Richards.

(Editing by Andrew Roche)