Britain's leading share index dropped 2.2 percent in mid-session trade on Tuesday, with negative news flow on the UK and global financial sector denting banks and contributing to a broad-based retreat in equities.

At 1142 GMT, the FTSE 100 .FTSE index was 111.56 points lower at 4,992.94, slipping below the 5,000 level for the first time since Oct. 2 having gained 1.2 percent on Monday.

Banks were hit hardest as Lloyds Banking Group (LLOY.L) launched a record 13.5 billion pound ($22 billion) rights issue and along with rival Royal Bank of Scotland (RBS) (RBS.L) agreed to sell off some businesses to limit their reliance on government support.

The British Treasury said Lloyds and RBS would between them have to sell off businesses equating to 10 percent of the UK retail banking market. 

Lloyds pared early gains but was still an outperformer as investors digested the confirmation of long-expected plans.

RBS shares shed 6.6 percent, reflecting weakness in the wider banking sector, which reeled after a bankruptcy move by U.S. lender CIT and following comments from a Federal Reserve official warning about loan losses.

Swiss peer UBS (UBSN.VX) also added to the malaise after posting disappointing results.

HSBC (HSBA.L), Standard Chartered (STAN.L) and Barclays (BARC.L) lost 3 to 4.3 percent.

Stephen Pope, chief global market strategist at Cantor Fitzgerald said the news, although not all bad, had weighed on sentiment, leaving a murkier picture of UK recovery hopes.

Is this just the opening salvo?, said Pope. There are great doubts about the UK recovery.

We've just gone through the 10-week moving average and unless we get back up to the 5,100 level in a short space of time we could see the start of some side tracking, he said.

The uncertainty saw commodities impacted as demand concerns weighed on both metal and oil prices, which were hit by a rising dollar.

Heavyweight miners fell back, with Fresnillo (FRES.L), BHP Billiton (BLT.L), Xstrata (XTA.L) and Vedanta Resources (VED.L) shedding 3.7 to 5.4 percent.

ENERGY DRAIN

Energy stocks also sagged with BP (BP.L), BG Group (BG.L), Royal Dutch Shell RDSA.L, Tullow Oil (TLW.L) and Cairn Energy (CNE.L) down 0.5 to 3.4 percent.

In individual issues, Hammerson (HMSO.L) was down 2 percent after the firm said it is concerned about property debt levels, while broker Collins Stewart's view on a challenging market also weighed on the stock.

Engine-maker Rolls Royce (RR.L) fell 2.4 percent after the company's interim trading update disappointed investors, with Evolution Securities repeating its sell rating on the stock.