UPDATE 1-Sainsbury's leads FTSE 100 lower, Taylor Wimpey warning knocks housebuilders

British shares were in the red on Thursday as investors soured on Sainsbury's after the company scrapped its proposed takeover of Walmart's Asda, while Taylor Wimpey's warning on margins triggered a sell-off among housebuilders.

The FTSE 100 lost 0.4 percent and the FTSE 250 was down 0.3 percent by 0825 GMT. Sainsbury's tumbled 5.6 percent to a near three-year low after the supermarket chain scrapped its proposed 7.3 billion pound takeover of Walmart-owned Asda after the deal was blocked by Britain's competition regulator.

"The failure of securing a merger with Asda leaves the group in a bit of a vacuum, with leadership and strategic uncertainties the byproduct of the CMA's rebuttal," Jefferies analysts said. "Next week's numbers are likely to act as a wakeup call to refocus (on underlying business) and decide how to react to the continued erosion of their business to the likes of Aldi and Lidl," said CMC Markets analyst Michael Hewson.

Shares of rivals Tesco, Morrisons and Ocado were down between 1.3 percent and 3 percent. Taylor Wimpey shed 4.5 percent and was on course for its worst day in more than five months after it warned full-year margins would be slightly lower than last year as it cost more to build homes.

Fellow blue-chip housebuilders slipped after the update from Britain's third-largest homebuilder. Persimmon fell 3.7 percent, Barratt gave up 2.7 percent and Berkeley lost 2 percent. Housebuilders on the mid-cap index were also left reeling. Bovis Homes, Redrow, Bellway and Crest Nicholson skidded between 2.5 percent and 4.4 percent.

Barclays' first-quarter profits fell 10 percent as tough market conditions led to lower earnings at its under-pressure investment bank, sending shares down 2 percent. Stocks trading ex-dividend also dragged the main bourse lower. Legal and General gave up 5.2 percent, while miners Antofagasta and Glencore shed 3.3 percent and 3 percent, respectively, despite higher base metal prices.

Acacia Mining shed 4 percent on the FTSE 250 after its quarterly underlying core earnings slumped amid production issues at its North Mara gold mine in Tanzania. Corporate headlines shifted the focus slightly away from Brexit, but uncertainty remained as Britain's Conservative Party looks likely to demand a "clear roadmap" for Prime Minister Theresa May's departure if a European Union divorce deal is not approved.

Among small stocks, flooring retailer Carpetright soared 26 percent and was on track for its best day in almost 12 years as a significant improvement in UK like-for-like sales in its latest quarter led investors to believe that its restructuring efforts were beginning to pay off.