The top share index pared gains by midday, as concerns over the stability of European banks in the face of the global debt and growth crisis took the wind out of an earlier advance.
Barclays, Royal Bank of Scotland and Lloyds Banking Group swung violently on worries banks will sustain further losses associated with exposure to Europe's lingering debt crisis.
BofA Merrill Lynch cut its rating on banks to "neutral".
"Our latest downgrade to global growth expectations makes it difficult to sustain conviction in this argument," the broker said.
"As long as EU peripheral debt issues remain in the headlines despite the best efforts of the ECB, banks will likely remain a focal point for negative risk appetite and we believe this will weigh against optically cheap valuations and low investor positioning,"
On Wednesday, French bank Societe Generale was forced to deny it could be in trouble over its exposure to Greece, and ratings agencies denied that, like the United States, France was about to lose its triple A credit rating.
Standard Chartered and HSBC, up 0.4 and 0.8 per cent respectively, provided relatively stable haven for investors who still want exposure in the sector.
"Loss of confidence is most dangerous for banks that rely on short-term sources of wholesale funding," RBS said in a note.
"If the market is concerned about bank funding, these are the names to avoid, and the best places to be in are HSBC and Standard Chartered."
City A.M. Reporter