Cyclical mining and oil & gas stocks weighed after data showed Japan’s economy expanded at half the pace expected in the second quarter and China’s July copper output fell 6.8 per cent drop from a month earlier on weak demand.
Traders said the market’s direction in the coming month depended on interventions by the European Central Bank and the Federal Reserve to ease a sovereign debt crisis in Europe and stimulate global growth.
“The market has been dragged up on the hopes of easing in various areas and essentially the longer it takes for any news to come through, the more weakness we’re going to sell into,” said Dan Reed, a trader at HB Markets.
“The Japanese data took the wind out of the sails. Volumes are very thin so direction is hard to find at this point in time I would have more a short bias at this stage.”
Investors had already started to bet on new monetary action, pushing the FTSE 100 to four-month highs last Thursday, although no official announcement is expected until September.
But expectations of forthcoming ECB action to bring down borrowing costs for struggling countries were tempered over the weekend, when governing council member Luc Coene raised concerns that new bond purchases could take the pressure off governments to repair their finances.
The FTSE 100 closed 15.23 points lower, or 0.3 per cent, at 5,831.88 points, having traded less than half of its full-day volume average.
The index was pulling back after failing to break above a technical resistance at 5,865, the 161.8 per cent projection of the 1-20 June rise.
“The way the market struggled to make much headway towards the end of last week gives me the impression that resistance is starting to bite,” Bill McNamara, technical strategist at Charles Stanley, said.
“I don’t see a massive selloff initially. For the time being we could just see it... back down to 5,700 or so.”
The FTSE’s 14-day relative strength index also pointed to weakening momentum as it extended its fall from six-month highs hit on Thursday.
Oil services firm Petrofac led fallers, shedding 5.6 per cent in volume, nearly twice the average, on concerns over contract delays as it reported first-half results.
Fund manager Schroders was the top FTSE 100 riser, up 0.85 per cent to 1,410p, followed by Lloyds Banking Group, whose shares rose 0.84 per cent to 31.6p. In the banking sector, Standard Chartered shares rose 0.53 per cent to 133.5p, bolstered by reports that the British bank is trying to reach an early settlement over charges it hid $250bn (£159.12bn) of transactions tied to Iran.
Though analysts estimate the bank could be forced to pay a fine of up to $1bn, investors see an early payout as preferable to drawn out court procedures.
Recruitment giant Michael Page saw a slump in its share price, down 1.9 per cent to 371.2p, after it revealed half-year profits have fallen and tough economic conditions have hit is UK banking business especially hard.
Shares in outsourcing group Mitie also dropped 4.13 per cent to 274p, despite the firm reporting it had achieved the bulk of its annual budgeted revenues.