The FTSE share index edged lower on Wednesday, weighed on by riskier banking and mining assets which more than offset gains in defensive stocks.

London's blue-chip index <.FTSE> closed down 5.30 points, or 0.1 percent, at 5,507.40, well off its intraday high of 5,567.86 with Wall Street lower as the British market closed.

Volumes were light at 45 percent of the 90-day average, adding to volatility as the FTSE 100 stuttered near key technical levels around 5,590. As the index approached those levels, the FTSE volatility index <.vFTSE> -- a gauge of investor fear -- rose 12 percent.

Traders said the lingering threat of downgrades by ratings agencies over some euro zone nations continued to hang over valuations and the outlook for the global economy.

David Miller, partner at Cheviot Asset Management which has assets of 3.5 billion pounds, said while he expected the FTSE 100 to periodically test the 6,000 level in 2012 when market volatility and indifferent political leadership will continue, albeit with more positive news on the horizon.

Overall, we are seeing incremental good news as the driving force behind positive returns rather than spectacular grand announcements. Resilience will be the cornerstone of 2012. If investors keep actively searching for value, they will be rewarded.

With the economic outlook opaque -- amid large debts and low growth -- miners <.FTNMX1770> led the fallers as copper prices dropped, snapping four days of gains on concern demand may wane after poor economic data overnight from the U.S. and Japan, and as flooding in Thailand hit major manufacturers.

Evraz , Russia's largest steelmaker, fell around 5 percent, hit by news an earthquake forced the suspension of coal mining operations in Siberia's Kuzbass region.

Banks <.FTNMX8350> fell too as risk appetite faded with Barclays . Lloyds Banking Group and Royal Bank of Scotland down as much as 3.8 percent.

International Airlines Group shed 2.3 percent ahead of a strike by Iberia pilots, which is still planned to go ahead on Wednesday after talks on Tuesday failed to avert industrial action.

Luxury goods group Burberry was the only blue-chip stock trading ex-dividend on the final Wednesday of 2011.


Investors continued to buy into defensive stocks, which have largely outperformed the FTSE 100's 6 percent fall in 2012 as investors look for safer havens from the economic storm.

British American Tobacco and Imperial Tobacco were up 2 percent and 1 percent, respectively. Drugmaker GlaxoSmithKline was up 0.6 percent, while Vodafone , liked for its dividend, was 0.1 percent higher.

With so much continued uncertainty investors will probably be spending most of 2012 walking a tightrope, Angus Campbell, head of sales at Capital Spreads said.

This means defensive stocks have to be considered as part of any equity portfolio, he said, adding Centrica was his top pick.

(Editing by Dan Lalor)