The FTSE 100 index closed down 16.91 points, or 0.3 per cent, at 5,586.61, after it tumbled 2.6 per cent on Tuesday -- its biggest one-day percentage dip since late November -- hit by credit rating downgrades by S&P for both Greece and Portugal.
S&P yesterday cut its ratings on Spain by one notch to AA from AA-plus, citing a more protracted period of sluggish growth than previously expected.
Banks on UK blue chip index were under pressure, with Barclays, Lloyds Banking Group and Royal Bank of Scotland off 1.5-1.9 per cent.
But HSBC, which has a large presence in Asia, and emerging market-focused Standard Chartered bucked the weak sector trend, trading flat and up 0.2 per cent respectively.
‘The UK is in some sense... isolated because it’s not part of the eurozone, but make no mistake, this is something which is potentially going to wash up on the UK shores,” said Peter Dixon, economist at Commerzbank.
Other financials were also hit by retreating risk appetite. Man Group, the world’s largest listed hedge fund firm, and insurers Admiral Group and Aviva were one to 3.6 per cent weaker.
Greece will receive much more aid than initially expected, German lawmakers said yesterday after a briefing with the International Monetary Fund.
Greece’s share benchmark rose 0.6 per cent. The country’s securities regulator yesterday banned short-selling in shares on the Athens bourse until 28 June.
UK-listed miners were lower along with metals prices, with Antofagasta, Eurasian Natural Resources and Vedanta Resources down 0.6-2 per cent.
Energy stocks rose as Royal Dutch Shell, up 2.3 per cent, continued a run of better-than-expected first-quarter profit rises by the big international oil companies on the back of higher oil prices, and boosted, in its case, by an unexpected return to production growth.
BG Group, which reports its first-quarter earnings today, grabbed the top spot on the blue chip leader board, up 3.9 per cent, while BP added 2.5 per cent, having posted a sharp rise in profits on Tuesday.
GlaxoSmithKline put on 0.3 per cent as bumper sales of swine flu vaccine boosted the drugmaker’s first-quarter earnings by 17 per cent, more than expected, and it reassured investors it could absorb the cost of US healthcare reform.
Dow Chemical reported a profit that beat expectations.
ARM Holdings, Centrica, Reed Elsevier and Tesco fell after going ex-dividend.