Nevertheless, several traders felt any pullback would be relatively short-lived and saw the UK stock market rallying into the end of 2013.
The benchmark FTSE 100 index closed down by 0.3 per cent, or 21.18 points, at 6,674.48 points.
Banks took the most points off the index.
Royal Bank of Scotland fell 2.7 per cent on concerns over its exposure to a US mis-selling probe on mortgage-backed bonds, and uncertainty over UK finance minister George Osborne’s examination of a possible split-up of the bailed-out lender.
“There’s an unquantifiable break-up risk with RBS,” said Rob James, senior UK equity analyst at Old Mutual Global Investors.
Cavendish Asset Management fund manager Paul Mumford added that worries about US fines were also weighing on rival bank HSBC, which earlier this month was hit by a U.S. securities class action lawsuit ruling.
“There are worries that the Americans are trying to hit the UK banks with further fines,” said Mumford.
The broader European banking sector also fell after a European Central Bank’s asset quality review demanded that banks boost their capitalisation.
Chip designer ARM fell sharply for the second consecutive day, declining by five per cent to make it the worst-performing FTSE 100 stock, after UBS cut its rating on ARM to “neutral” from “buy” on valuation grounds.
However, insurer RSA rose 2.5 per cent in heavy volume amid renewed speculation it could be subject to a bid. RSA declined to comment on the situation.
The FTSE 100 has risen 13 per cent since the start of 2013 and is just three per cent away from a 13-year peak of 6,875.62 points reached in late May.
JN Financial trader Rick Jones felt the FTSE 100 could finish 2013 in the 6,900-7,000 point range.
Charles Stanley technical analyst Bill McNamara felt buyers would step in if the FTSE fell to the 6,625 point level, which marked a peak for the index in September.
The FTSE 100 has risen 0.6 per cent on Tuesday to reach its highest close since late May after expectations that the US Federal Reserve would stick with a bond-buying programme.