* FTSE falls to lowest level in nearly 3 weeks
* Dixons Carphone down 20 pct on profit warning
* M&A activity underpins Smiths, IWG
By Danilo Masoni
MILAN, May 29 (Reuters) - British stocks fell on Tuesday, joining a Europe-wide sell-off triggered by worries over a political crisis in Italy, while a profit warning at Dixons Carphone wiped one fifth off the retailer’s market value.
The UK’s top share FTSE 100 index fell 1.1 percent to its lowest level in nearly three weeks, shrugging off a fall in the pound as it resumed trading after a long holiday weekend. The FTSE 250 midcap index fell 1.3 percent.
“Even a weaker GBP (typically a boon for FTSE global stocks) and EUR battered by Italian/Spanish geopolitical risks were not sufficient to prop up equities,” said Accendo Markets analyst Artjom Hatsaturjants in a note.
Dixons Carphone, which is struggling in a difficult market for selling phones and electrical goods in Britain, warned profits were likely to plunge by a fifth this year and said it would have to close shops to fix itself.
The shares in the company, formed in 2014 by the merger of Dixons Retail and Carphone Warehouse, fell 20 percent and it their lowest level since December 2017.
“We look forward to a fuller update from the company at the full year results on the company’s plans on 21st June,” said Liberum analysts in a note.
“The key question remains as to what, ultimately, the Carphone Warehouse will look like and how profitable this can be. Deeper clarity on management’s strategy could be the next catalyst,” they added.
Top fallers on the FTSE were banks Royal Bank of Scotland and Barclays, both down more than 3 percent, as financials in Europe were under pressure on worries the next Italian election could turn into a referendum on the euro.
Among the few gainers were precious metal miner Fresnillo , up 3.4 percent, tracking a rise in gold prices, while engineering firm Smiths surged to a record high after news it was in early talks over a potential combination of its medical division with U.S.-based ICU Medical.
M&A talk also lifted serviced office provider IWG. U.S. real estate investment company Prime Opportunities said IWG had rejected its offer approach for the British serviced office provider, sending its shares up 2 percent. (Reporting by Danilo Masoni Editing by Raissa Kasolowsky)