The FTSE share index retreated from six-month peaks on Tuesday as euro zone debt woes prompted investors to take profits in banking stocks and rebalance portfolios in favour of high dividend payers.

The fall on the London bourse chimed with weaker a equity performance in Europe <.FTEU3> and the United States <.SPX>, on worries that Greece could be heading for a messy default after it failed to secure a restructuring deal with private bond holders on Monday.

Investors are getting a bit concerned that these negotiations with Greece and private bond holders are failing to come up with anything. That has taken the gloss off the market, said David Morrison, market strategist at GFT Global.

It's a fairly good excuse to take a breather.

The FTSE 100 <.FTSE> closed down 30.66 points, or 0.5 percent, at 5,751.90, off Monday's six-month closing high of 5,782.56.


Prior to the sell-off, the index had been approaching overbought territory on the relative strength indicator (RSI), but the failure to break through resistance at 5,787 -- a trendline stretching back to November 2010 lows -- has dulled its technical outlook in the near term.

The close below that level will cause momentum to roll over suggesting the market is a bit overstretched at the top of the range, said Phil Roberts, chief European technical strategist at Barclays Capital.

He added that a move below 5,656, the trendline of the past three months, would be needed to confirm that the index's upward trend has run out of steam.

Financials led the market lower, with RBS down 4 percent and Lloyds off nearly 3 percent.

Broker downgrades weighed on fund firm Ashmore and independent financial adviser Hargreaves Lansdown , which lost 2.4 and 3.4 percent respectively.

A more risk-seeking mindset at the start of the year had benefited banking shares, with some investors seeing value after a 30 percent slump in the sector index in 2011 <.FTNMX8350>.

Tuesday's gloomier mood -- which saw the CBOE Volatility Index VIX <.VIX>, Wall Street's so-called fear gauge, rise further from last week's six-month lows -- refocused investors towards the traditionally less risky stocks, such as utilities.

A downgrade of several French banks by Standard & Poor's ratings agency overnight, which follows the recent cut in France's sovereign rating, added to the negative sentiment on the financial sector.

Banks have had quite a good run, so maybe it's no bad thing to take some money off the table, Morrison at GFT Global said. It's a move into the more defensive stocks and anything that's going to pay a dividend.

International Power -- one of the biggest dividend payers in the UK which rewarded shareholders with 1.6 billion pounds ($2.5 billion) in 2011 -- was up 2.3 percent, leading the FTSE 100 gainers.

British Gas owner Centrica added 1.8 percent, while SSE closed up 1.4 percent. ($1 = 0.6416 British pounds)

(Editing by David Cowell)