By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- Shares of Shire PLC and AstraZeneca PLC were under pressure Tuesday, as tax-inversion moves by the U.S. dimmed merger prospects for the pharmaceutical companies.

Tax toll: AstraZeneca lost 3.6% and Shire dropped 2.5%, after the U.S. Treasury on Monday issued new rules under the country's tax code, aimed at making so-called inversion deals more difficult to carry through and less profitable for the companies involved.

Under an inversion, a U.S. company reincorporates abroad to avoid U.S. taxes. The U.K. and Ireland have more lenient corporate tax rates than the U.S. In July, U.S. drug maker AbbVie Inc. (ABBV) agreed to buy Irish biopharmaceutical firm Shire, while British heavyweight AstraZeneca has been fighting off a hostile takeover from U.S.-based Pfizer Inc. (PFE).

Panmure Gordon's senior U.K. economist Simon French told clients Tuesday they "remain bullish for consolidation in this sector that stands to benefit from a rapidly aging population and a government that has fostered an accommodating corporation tax regime."

A deal in the U.S. Congress on tax simplification would appear unlikely in an increasingly hostile environment leading up to and beyond the midterm elections in November, French said. Inversion opportunities haven't vanished, but they must adapt to a more hostile political backdrop, he added.

The U.K.'s FTSE 100 fell 1.4%, dropping alongside European markets after lackluster eurozone economic data.

Movers: Tesco shares fell 4.2% and closed below 2 pounds each ($3.28) for the first time in more than 11 years. That lopped more than GBP690 million off the supermarket chain's stock-market value. On Monday, the shares tumbled nearly 12% after the U.K.'s largest retailer unveiled an accounting error that massively reduced its full-year profit outlook.

"We think top management and the company as a whole could struggle to wholly focused on day to day business in the coming months and hence expect further deterioration in [like-for-like sales] and market share trends," said Société Générale Cross Asset Research in a note.

But Carnival PLC was among benchmark's few advancers, with shares rising 0.3% after the British-American cruise ship operator raised its yearly outlook as quarterly earnings surged more than 30%.

Off the FTSE 100, shares of Tate & Lyle PLC sank 17% as the food ingredients maker cut its profit outlook for the second time this year, in part after a harsh winter in the U.S. hurt its business.

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