Weaker commodity stocks and banks pushed Britain's top share index lower early on Tuesday, after gains in the previous session, as confidence prompted by China's decision to give its currency more flexibility faded.
There were also nerves ahead of an emergency British budget which is expected to contain massive spending cuts and tax rises as worries about sovereign debt levels spread throughout Europe.
By 0815 GMT, the FTSE 100 was down 28.26 points, or 0.5 percent lower at 5,270.85, having gained 0.9 percent on Monday to touch its highest close in a month.
China's decision to allow bigger daily moves in the yuan had led on Monday to hopes that it would boost China's ability to buy imported goods, supporting a strong rally in demand sensitive stocks like miners and oils.
These, however, retreated on Tuesday as skepticism over the extent of the rise kicked in, with Essar Energy and miner Xstrata, down 0.7 and 1.4 percent respectively, among the stand-out losers.
BG Group fell 1.9 percent as Goldman Sachs downgraded its stance to neutral from buy on valuation grounds in a Europe-wide review of the energy sector.
BP, which has tumbled nearly 50 percent since a massive oil spill started in the Gulf of Mexico in April, fell 2.1 percent.
The index had gained for seven consecutive sessions until Friday, as fears about sovereign debt around Europe faded to the background, but investors now awaited further clues on corporate and economic health before taking big positions.
We've overcome the worst of the sovereign risk concerns, there's nothing new to rattle the markets, but there's not enough confidence to push back to the highs at the start of the year, said Tim Rees, fund manager at Insight Investment.
Banks fell, with the sector nervous ahead of the impending emergency British budget, the first by the new coalition government, which is expected to impose a levy on the sector. Barclays fell 1.7 percent, while sector heavyweight HSBC lost 0.1 percent.
British finance minister George Osborne looks set on Tuesday to also announce big spending cuts and tax rises in what will be the tightest budget in a generation.
As the sovereign debt crisis spreads through Europe, rating agencies have warned even Britain's triple-A status could be at risk if the 39-year old Chancellor of the Exchequer's plans to cut the record deficit are found wanting.
Defensive tobacco and pharmaceuticals stocks lent the index some support as investors rotated back to stocks perceived as better equipped to weather tougher economic conditions. British American Tobacco added 0.6 percent, while AstraZeneca was up 0.5 percent.
But the strongest performer was Whitbread, up 3.9 percent as the hotel operator said Q1 sales rose 7.6 percent, boosted by a strong performance at its hotel chain Premier Inn.
(Editing by Louise Heavens)