At the close, the FTSE 100 index was down 150.33 points at 5,603.52, easily snapping an 88 point rally seen in the previous two sessions, and ending at a one-month closing low.
“It’s not just been a nice excuse to take profits off the table, it looks to be something more substantial, which does suggest there is some genuine worry over euro zone debt out there,” said David Morrison, market strategist at GFT Global.
Banks were the biggest drag on blue chips as sovereign debt crisis worries intensified, with Barclays, HSBC, Royal Bank of Scotland, Standard Chartered and Lloyds off 2.3-3.7 per cent.
S&P’s move to cut its debt rating for Greece to junk status came as Germany demanded painful new austerity measures from the debt-laden country.
S&P’s two-notch cut in its rating for Portugal heightened fears that the sovereign debt crisis could spread to another euro zone country.
The debt crisis fears meant Lloyds shares failed to benefit after the part-nationalised bank said in a first quarter trading update it had returned to profit as bad debts fell.
Miners were also a big weight on the blue chips as metal prices fell with the dollar strengthening and the demand outlook taking a knock. Kazakhmys, Rio Tinto, Vedanta Resources, Lonmin, Xstrata and Anglo American shed 4.7 to 6.2 per cent. Oil majors were weak as the crude price dropped 2.5 per cent, taking the shine off BP’s healthy first-quarter results.