* FTSE down 0.3 percent
* Banks down on Europe debt concerns
* TUI, Home Retail and ARM higher on M&A talk
By David Brett
LONDON, April 5 (Reuters) - London's blue-chip stock index was lower early on Tuesday, pressured by European debt worries and high oil prices, while M&A spurred stocks such as Tui Travel and ARM.
By 0805 GMT, the FTSE 100 was down 15.40 points, or 0.3 percent, at 6,001.58, having gained in eight of the past nine trading days to end at a six-week closing high on Monday.
The 8 percent rally on Britain's top share index stretches back to March 15, as investor confidence returned following the shock of Japan's earthquake and unrest in the Arab world, with focus switching to the improving economic outlook in the United States.
Banks were the biggest drag on the index after Moody's cut Portugal's sovereign debt by one notch.
Barclays and Lloyds Banking Group fell 2.1 percent and 1.3 percent, respectively.
"The ratings agencies have been warning that further cuts were likely, so it seems as though this has given investors a reason to bank some profits from recent gains," said Jimmy Yates, head of equities at CMC Markets.
Rising oil prices were also a factor in keeping stocks subdued, as profit margins come under pressure. Miners, which had led gains on Monday, were among those feeling the pinch.
Brent crude rose to $121 a barrel, or near two-and-a-half-year highs, as unrest in the Middle East and North Africa and delays to elections in Nigeria supported prices.
M&A GAINS
M&A is seen as a big factor to help drive demand for equities over other asset classes.
"Longer-term gains remain to be had, with companies using strong cash balances to improve returns for share holders," CMC's Yates said.
TUI Travel rose 4.7 percent on news its German parent TUI AG had found an alternate route to exit its container shipping business Hapag-Lloyd after putting on ice plans for a flotation.
Home Retail climbed 5 percent as talk of a takeover bid for Britain's biggest household goods retailer was stoked by news that U.S. private equity firm Madison Dearborn Capital Partners (MDCP) had built up a 4.25 percent stake.
M&A prospects in the sector boosted chip designer ARM Holdings 1.6 percent as U.S. firm Texas Instruments Inc announced the acquisition of National Semiconductor Corp. Elsewhere, insurance consolidator Resolution rose 2.4 percent as Citigroup raised its target price.
Rexam gained 1.8 percent after Keybanc initiated the canmaker with a "buy" rating, pointing to "a leaner structure" and more settled business portfolio.
On the downside, Vodafone slipped 1.3 percent as Nomura cut its estimates on the mobile communication firm, citing impending changes to Indian telecom policy and a tough Spanish outlook.
National Grid shed 1.9 percent after HSBC cut its recommendation to "underweight" from "neutral".
Technical analysts said wile short-term gains could be limited, longer term the outlook for equities remained bright.
"If we spend the day above 5,970 you've got to still look for it higher ... the absence of reversal signals means our bias would be to stick with the trend," said Phil Roberts, chief technical strategist at Barclays Capital, citing 6,050, the high just prior to the earthquake in Japan, as the next significant level of resistance. (Editing by Will Waterman)