The FTSE 100 closed down 0.1 per cent yesterday, falling just 4.03 points to 4,230.02 in a choppy session, with thin volumes exacerbating movements, after losing 2.6 per cent on Monday.
The index has gained more than 22 per cent since hitting a six-year low in March, but is still down 4.6 per cent on the year.
“I think it’s one of those stories where we started off trying to replace some of the ground that was lost in the last few sessions … (but) the numbers that came from the US aren’t all that encouraging at the moment, enough to put us on the back foot,” said Stephen Pope, chief global market strategist at Cantor Fitzgerald.
Sales of previously owned homes in the US rose at a slower-than-expected pace in May, an industry survey showed yesterday.
Oil firms reversed gains made earlier in the session, as crude drifted towards $67 a barrel. BG Group, BP and Cairn Energy fell between 0.1 and 0.6 per cent.
Banks were also big fallers, amid renewed pessimism on economic recovery.
Lloyds Banking Group dropped 4.2 per cent, Royal Bank Scotland fell 2.1 per cent and Standard Chartered was off 3.4 per cent.
Within the financial sector, Legal & General, down 7.9 per cent, led life insurers lower after Societe Generale cut its rating on the stock to “sell” from “hold”.
Aviva, Friends Provident and Prudential lost 0.9 to 3.1 per cent.
In the mining sector, Anglo American, which rejected a merger approach from rival Xstrata, fell 2.7 per cent, despite market talk of a possible bid from Aluminum Corp of China (Chinalco).
A Chinalco spokesman in Shanghai said the company was unaware of the bid talk, while Chinalco representatives in London and officials from Anglo declined to comment.
Xstrata gained 0.8 per cent, while strength was also seen among other blue-chip miners. Antofagasta added 3.9 per cent, with Eurasian Natural Resources, Rio Tinto and Kazakhmys up between 0.2 and 3.7 per cent.
Pharmaceuticals were in demand as investors piled into stocks perceived as defensive.
GlaxoSmithKline, which announced a deal with UK biotech Chroma Therapeutics, rose 1.6 per cent, while peers AstraZeneca and Shire added 0.9 per cent and 2.2 per cent respectively.
Elsewhere, Thomson Reuters rose 3.6 per cent after the global information firm said it planned to delist from the London Stock Exchange, which analysts said would close the discount to the company’s higher-priced New York shares.
In UK economics news, in a positive sign for the UK housing market, figures from the British Bankers Association showed a 15.8 per cent rise in the number of mortgages approved for house purchases in May from a year earlier.