* Blue-chip index ends 0.2 pct lower
* Diageo surges on reported possible bid interest
* Shire dips on report of potential takeover of Actelion
By Atul Prakash
LONDON, June 8 (Reuters) - Britain's top share index edged lower and finished near the previous session's two-week low, with sharp gains in Diageo on a reported takeover interest offset by weaker firms like Shire and GKN
Diageo, the world's largest producer of spirits, jumped 6.8 percent on reports Brazilian billionaire Jorge Paulo Lemann and his partners in private equity firm 3G Capital are considering a bid for the company.
"The industry has been a hotspot of M&A activity, with smaller brands being picked up by major names looking to boost their appeal in niche products, but this is a deal of a different order of magnitude," said Chris Beauchamp, senior market analyst at IG.
"Given the amount needed to actually succeed, this bid could either be a crowning glory for Mr Lemann or a moment of extreme hubris. At any rate, it has certainly allowed Diageo to move ahead of its rival SABMiller in performance terms for the year so far."
However, Diageo's gains were eclipsed by some weaker firms. Shire fell 2.8 percent after a Sunday Times report suggesting the pharmaceutical company was considering a 12 billion pound ($18 billion) takeover of Actelion, Europe's biggest biotech firm. Actelion shares jumped 5.8 percent.
Engineering firm GKN fell 2.5 percent, with traders citing a report which indicated that Airbus was looking to renegotiate with its suppliers to cut costs.
The blue-chip FTSE 100 index closed 0.2 percent lower at 6,790.04 points after falling to a two-month low in the previous session.
The index fell 2.6 percent last week, its biggest weekly drop so far this year, but is still up more than 3 percent so far this year.
British grocers also fell, with Morrisons down as much as 1.8 percent before closing 0.5 percent lower as it announced price cuts on Monday. It said in March 2014 that it would allocate 1 billion pounds ($1.5 billion) towards lowering prices over three years.
Like rivals Tesco and Wal-Mart's Asda, Morrisons is lowering prices in a bid to stem the flow of shoppers turning to discounters Aldi and Lidl .
Tesco shares fell 1.1 percent. (Additional reporting by Liisa Tuhkanen; Editing by Catherine Evans)