The FTSE 100 closed down 79.73 points, or 1.3 per cent lower at 5,976.70, ebbing away from Tuesday’s fresh 31-month high.
“The market moved a long way ahead of the last quarter and it deserves a bit of a pull back,” said Paul Kavanagh, a partner at Killik & Co.
Kavanagh said there was still appetite to get involved in this market with short-term investors enjoying the fluctuations, but longer term investors are lingering on the sidelines waiting to get involved lower down than 6,000.
Optimism over corporate earnings took a knock after US banking giant Goldman Sachs posted a decline in quarterly profit, which followed Citigroup missing estimates on Tuesday.
UK banks fell on talk out of Germany, which has been denied, that Greece’s debt may have to be restructured, traders said. Barclays fell 3.8 per cent.
London-listed miners such as Lonmin, down 3.2 per cent, were lower along with metals after economic data from the United States and ahead of a raft of key Chinese economic data due to be released early today. Groundbreaking on new US home construction fell more than expected in December to its lowest in over a year, suggesting the battered housing sector remains a major roadblock to economic recovery.
“There’s a bit of a dance going on, the indexes go up and hit new highs and then pull back as nervousness creeps in,” said Karen Olney, head of thematic strategy at UBS.
Retailers such as Marks & Spencer, Next and Morrison Supermarkets fell as much as 2.3 per cent after investors’ confidence was dented in the sector after updates from Kesa and HMV.
Europe’s third largest electricals retailer, FTSE 250-listed Kesa, shed 9.8 per cent after warning on full-year profits, while small cap HMV slid 2.9 per cent on worries over its future as credit insurers reduced the cover they are prepared to give to suppliers of the music and book retailer.
Morrison Supermarkets was also weighed on by a Morgan Stanley downgrade to “underweight”.
Imperial Tobacco fell five per cent after going ex-dividend.
On the upside, publisher Pearson was the top gainer, rising 4.5 per cent after raising its profit forecast again.
GlaxoSmithKline and Essar Energy rose 0.8 and 0.9 per cent respectively, as bargain hunters moved in following declines in the previous session.
Tate & Lyle gained 4.9 per cent with traders citing talk of bid interest, with US agricultural business Cargill cited as a possible suitor.