The blue chip FTSE 100 <.FTSE> index closed 0.6 percent lower at 7,282.69 points as markets traded lower following news that a coalition of U.S. states and municipalities have begun legal action against President Donald Trump's administration over energy efficiency standards.

Oil stocks rallied earlier in the session but gave up gains to end in negative territory as oil prices came under pressure. BP (>> BP plc) retreated 0.3 percent and Royal Dutch Shell fell 1 percent.

Likewise British banks also lagged, and took around 13.5 points off the index, the biggest sectoral drag. Barclays (>> Barclays PLC) fell 1.6 percent and Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) was down 0.9 percent, in line with a broader decline among continental lenders.

Resources-linked stocks and banks have been the biggest beneficiaries of the reflation trade which has driven global markets as investors bet on increased infrastructure spending and tax cuts, which gathered pace after Trump was elected U.S. President in November.

Among individual fallers, ITV (>> ITV plc) dropped 2.6 percent and gave back a large part of the gains it made on Friday on the back of M&A speculation.

Late on Friday, ITV jumped following a regulatory ownership filing that fuelled speculation of renewed Liberty Global (>> Liberty Global PLC) interest in the company.

ITV's shares pulled back on Monday after Liberum analysts said that it had spoken with the company and ITV had said that the move was not Liberty increasing their stake in ITV.

Retailer Next (>> NEXT plc) was another sizeable faller, down 3.6 percent after Exane BNP Paribas cut its rating on the stock to "underperform" from "neutral".

Luxury firm Burberry (>> Burberry Group plc), however, was a top riser, up 0.8 percent after it agreed to license its fragrances and cosmetics business to Coty (>> Coty Inc) for $162 million, plus a $63 million payment for inventory.

"It’s maybe one of those signature deals which could raise expectations of a new way of doing business, a new extra source of revenue beyond the traditional model," Jasper Lawler, senior market analyst at London Capital Group, said.

Outside of the blue chips, Imagination Technologies (>> Imagination Technologies Group plc) plunged more than 61 percent, its biggest one-day loss on record after its biggest customer Apple said that it would stop using the British firm's graphics technology in the iPhone and other products in up to two years' time.

"It’s the worst nightmare for Imagination. Apple accounts for about half its revenues – you simply cannot easily replace a customer of that scale in a hurry, hence the gigantic selloff in the stock," Neil Wilson, senior market analyst at ETX Capital, said.

(Reporting by Kit Rees; Editing by Stephen Powell and Pritha Sarkar)

By Kit Rees