Britain's FTSE-100 index fell on Monday to levels not seen in nearly two weeks, with the absence of a bond deal for Greece and fresh concerns about the debt problems of other euro zone nations keeping investors away from banks and miners.
London's top share index was down 0.8 percent, or 48 points, at 5,685.87 points at 1202 GMT, adding to Friday's losses and moving further away from a six-month closing peak of 5,795.20 set on Thursday.
The retreat has dulled the techical outlook, with support now seen at 5,590 and 5,520, according to Guardian Stockbrokers.
A relatively blank UK calendar put investors' focus firmly on Brussels, where EU leaders meet at 1400 GMT to sign off a permanent rescue fund for the euro zone -- Britain's biggest trading partner -- at a summit expected to be overshadowed by unresolved Greek debt problems.
Confidence globally gets eroded and that has a negative impact on equities markets and also on corporate investment, James Knightley, senior economist at ING, said.
The FTSE volatility index climbed as far as 20.5, its highest in nearly two weeks and on track for its biggest daily percentage rise in a month, signalling a rise in risk aversion.
To avoid a chaotic default -- which could have grave ramifications for sentiment and financial systems across the globe -- Greece must secure a deal with its private bond holders and persuade international lenders it is serious about reforms in order to secure much-needed cash.
Fresh tensions between Greece and the euro zone's biggest economy Germany over the weekend are unlikely to help sentiment, while problems are also seen in other euro zone nations.
Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday, while investors have been ditching Portugal's stocks and bonds in the belief it will need a second bailout.
The UK is going to get buffeted around (by euro zone troubles) because of the three main linkages - exports, sentiment and financing. The UK's banking sector is still heavily exposed to the euro zone, ING's Knightley said.
Banks -- which started 2012 on a strong footing after a lacklustre 2011 -- made the biggest dent on the FTSE on concern that extra liquidity injections from central banks have not fixed the sector's fundamental problems.
Lloyds lost around 4 percent, RBS moved nearly 3 percent lower and Barclays was down 2 percent.
A retreat in crude weighed on the oil and gas sector after an expected Iranian vote to suspend crude exports to Europe was postponed, easing concerns over supply.
Miners -- another favourite in early January -- moved into the red, as last week's softer-than-expected U.S. economic data fuelled concerns about this year's demand levels.
There is a widespread expectation that ... U.S. economic activity is likely to ebb as 2012 progresses, therefore global growth will come in below trend, Jeremy Batstone-Carr, head of research at Charles Stanley, said.
Further clues on the health of consumer demand will come on Tuesday with results from Britain's dominant pay-TV group BSkyB and chip designer ARM. Both stocks edged up on Monday. UBS said that among European companies reporting this week, ARM was its top pick to beat expectations.
JP Morgan Asset Management, though, cast a note of caution, putting the chances of a double-dip in Britain at 50-50.