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UPDATE 2-London's FTSE 100 drops to near three-week low as virus risks weigh

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Fashion retailers Boohoo and ASOS surge on merger deals

* Recruiter SThree gains after resuming dividends

* UK looks at toughening border quarantine rules

* FTSE 100 down 0.8%, FTSE 250 falls 1.2% (Updates to close)

Jan 25 (Reuters) - British stocks ended lower on Monday, with travel stocks leading the declines, as rising coronavirus infections and extended lockdowns raised worries of prolonged economic pain, while fashion retailers Boohoo and ASOS gained on merger deals.

British Prime Minister Boris Johnson said he was looking at toughening border quarantine rules because of the risk of “vaccine-busting” new coronavirus variants.

The blue-chip FTSE 100 index fell 0.8%, declining for the third consecutive session, with travel and energy stocks falling the most, while the mid-cap index dropped 1.2% to a one-month low.

“Stock markets are crawling between optimism around the rollout of vaccines and worries that a jump in virus infections and fresh local lockdowns could further affect economic recovery prospects,” said David Madden, an analyst at CMC Markets.

Britain has detected 77 cases of the South African variant of COVID-19, the health minister said on Sunday while urging people to strictly follow lockdown rules as the best precaution against the country’s own potentially more deadly variant.

The FTSE 100 lost 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy.

“Once again the optimism generated by the vaccine breakthroughs at the end of 2020 is colliding with the reality of inoculating populations and dealing with the new variants of COVID-19,” said Russ Mould, investment director at AJ Bell.

Online fashion retailers Boohoo and ASOS surged 4.7% and 5.6%, each. Boohoo bought the Debenhams brand, while ASOS was in talks to buy the key brands of Philip Green’s collapsed Arcadia group as the COVID-19 pandemic turbocharges the industry’s shift to digital.

Recruiter SThree Plc gained 3.5% after its profit, which nearly halved, still managed to beat market expectations and the company said it had resumed dividends. (Reporting by Shashank Nayar in Bengaluru; editing by Uttaresh.V; Editing by Alex Richardson)

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