By the close, the FTSE 100 index was 64.69 points lower at 5,278.23, reversing again after Wednesday’s 0.5 per cent rally to take the overall decline for the week so far to 1.5 per cent.
US blue chips were 1.8 per cent lower by London’s close as an increase in weekly jobless claims fuelled concerns about the economy.
Markets were also hit after rating agencies said they may downgrade Greece’s sovereign debt, reigniting worries over possible defaults in the eurozone, knocking the euro and boosting the dollar.
“It just feels there is an awful lot of things coming together at the moment, with the Greek situation coming to a head and the cautious data,” said David Morrison, market strategist at GFT Global.
“We’re trading around fairly crucial support levels now, and the danger is with a bad end to the week, and the month, things could come crashing down,” said Morrison.
Miners were the biggest drag on the UK blue chip index as metal prices fell back under the impact of the weaker dollar. Xstrata, Lonmin, Rio Tinto and Anglo American lost 3.3 to 4.8 per cent.
Energy issues were also lower as the crude price dropped 3.4 per cent with BP, Royal Dutch Shell, BG Group, Tullow Oil and Cairn Energy off 1.5 to 3.1 per cent.
Cairn Energy was also impacted by a downgrade in rating by Goldman Sachs to “sell” from “neutral”.
Banks took a tumble, reversing earlier gains, unsettled by the Greek debt situation and concerns over the global recovery after recent economic data.
Global heavyweight HSBC, which reports full-year earnings on Monday, fell 1.1 per cent, while Barclays, and Standard Chartered lost one and 1.5 per cent, respectively.
Royal Bank of Scotland, however, was the top FTSE 100 gainer, up 6.2 per cent as investors expressed relief after its 2009 operating loss shrank to £6.2bn ($9.51bn), despite a jump in bad debts.
And Lloyds Banking Group, scheduled to post its results on Friday, added 2.6 per cent on hopes for a similar performance.
Aside from RBS, Thursday’s big batch of blue chip results proved mixed. Outsourcing firm Capita fell 4.2 per cent after its full-year results disappointed, with Seymour Pierce highlighting fears over the organic growth rate at the group.
British American Tobacco shed 2.3 per cent as the world’s second-biggest cigarette maker's full-year results met forecasts but failed to excite, with Evolution citing concerns over organic growth. Peer Imperial Tobacco dropped 0.4 per cent.
But Centrica gained 2.1 per cent after the gas distributor reported better than expected full-year results.