* FTSE 100 down 0.2 pct
* WM Morrison and Tesco both report a drop in sales
* William Hill hit by threat of government regulation
LONDON, Jan 9 (Reuters) - Britain's top share index fell on Thursday, hit by a string of weak trading updates from retailers that confirmed a tough Christmas on the high street and regulatory concerns for bookmaker William Hill.
WM Morrison, Britain's fourth-largest supermarket, fell 6.2 percent in early trade, the top FTSE 100 faller, after the grocer posted a sharp fall in like-for-like sales over Christmas.
The company blamed the "disappointing" performance on difficult market conditions, heavy discounting by rivals and the lack of a full online offer. It said it now expected its full-year underlying profit to be towards the bottom of the range of current market expectations.
"There's the impression that more and more business is going online, and Morrison's has been slow to come into that area. Their online offering is going to need to become pretty good, pretty quickly to compete," Will Hedden, sales trader at IG, said.
Tesco, the world's third biggest retailer, fell 3.6 percent after it also reported a drop in like-for-like sales, saying profit would be lower than it guided for in December. J Sainsbury fell 1.7 percent, the day after it cautioned over consumer demand.
Marks & Spencer recovered an early fall to trade 1 percent higher, however, as a good performance in its food division and reassurance from the conference call outweighed a tenth straight quarter of decline in clothing sales, traders said.
The FTSE 100 dipped by 12.38 points, or 0.2 percent, to 6,709.40, with consumer staples taking five points off the index. The energy sector provided support for the index as the oil price firmed, led up by Tullow Oil, the index's top riser, which gained 2.5 percent after an upgrade by HSBC.
Rivalling the retailers among top fallers was William Hill , down 6 percent, suffering from a downgrade to equal weight from overweight by Barclays after the British parliament debated fixed odds betting terminals and did not rule out restricting them.
"Regulatory change has always been the key driver of sentiment toward the gambling sector. Yesterday the Labour Party called for greater regulation of the gambling industry in the UK," analysts at Barclays said in a note.
"We stress that there has been no change to regulation but we expect that this negative news-flow will weigh on the sector...In the absence of clarity, we downgrade William Hill."
Mid-cap Ladbrokes fell 4 percent, with Barclays cutting its rating on the stock to "underweight".
"For the bookmakers, any mention of regulation is going to be a big concern for investors, and as the market is weaker today, the move is getting exaggerated," IG's Hedden said.