The FTSE was dragged down this morning as Standard and Poor's downgraded 15 banks including Barclays and HSBC while miners were hit by lower copper prices.
The S&P cut, on banks mostly in Europe and the United States, hit the sector which has already taken a battering from the Eurozone debt crisis.
Meanwhile Eurozone ministers agreed to ramp up the firepower of their rescue fund and may turn to the IMF for more help as Italian borrowing costs hit new highs.
In the UK, Fitch credit rating agency said Britain's ability to keep its top triple-A credit rating had been "largely exhausted" and the British government had to take further deficit-cutting steps to help it absorb further economic shocks.
The warning came as investors analysed the chancellor's Autumn statement which laid bare the state of the country's finances with bleak borrowing and unemployment forecasts.
On London's blue chip index the mining sector was the biggest faller. Xstrata was down 3.5 per cent while Vedanta lost three per cent. Others hit included Eurasian, down 2.9 per cent, and Rio Tinto which lost 2.6 per cent.
The biggest individual faller was Cairn Energy which was down more than five per cent after a market update which said that it had failed to find sufficient oil to go ahead with a project in Greenland.
In banking HSBC was down just over one per cent, Lloyds 0.6 per cent and Barclays 1.7 per cent.
The highest climber was Shire which was up 1.5 per cent. Accountancy software firm Sage was also up more than one per cent after it announced a 25 per cent hike in its dividend.
In Asia the Nikkei closed down 0.5 per cent and the Hang Seng 1.4 per cent.
Meanwhile inflation in the 17-nation Eurozone remained at three per cent for the third consecutive month in November, according to a first estimate.