The FTSE 100 closed down 11.00 points, or 0.2 per cent, at 5,809.45. The index has swung in a 100-point range over the last five days and has registered gains of just 0.8 per cent over the last month.
After rising just over 11 per cent since early June – fuelled by central banks acting to stimulate the global economy – investors have started to take risk off the table.
Banking shares dominated the fallers after UBS cut their rating to “neutral” from “buy”, citing concerns the sector may need to raise new capital at some point.
Part-nationalised lenders RBS and Lloyds fell 3.3 per cent and 2.5 per cent.
Investor sentiment towards risk assets continues to waver with worries lingering over whether Spain will request a bailout from Europe and if global economic growth can be sustained.
European officials said Spain is ready to request a Eurozone bailout for its public finances as early as next weekend but Germany has signalled it should hold off.
British defence services group Babcock rose 2.4 per cent after the firm delivered a strong first-half performance.
Tesco and Sainsbury, both due updates today, climbed 1.7 per cent and 0.3 per cent respectively.
Heavyweight integrated oil stocks rose as a sector, led by BG Group, up 1.6 per cent after Citigroup published an upbeat note.