The FTSE 100 fell in light volume on Monday, with investors selling riskier banking and mining assets as analysts concluded the lack of detail in a European deal on fiscal union left question marks over its long-term plausibility.
London's blue-chips fell 101.35 points, or 1.8 percent, to 5,427.86, erasing Friday's 0.8 percent rise, as analysts said there was far more work for European leaders to do before Europe's debt crisis could be solved.
Analysts at RBS, and Brewin Dolphin's Mike Lenhoff, said the lack of detail left doubts over euro zone fiscal union, which in turn could prevent more meaningful support from the European Central Bank.
In addition, Standard and Poor's credit rating agency said the European Union will need more summits to resolve its debt turmoil and time is running out.
Credit Suisse said: There are no details on any of the key issues (of the European agreement) -- just lots of promises. And historically, follow-through has disappointed.
Banks were the main drag on a FTSE 100 index that has remained largely between 5,400 and 5,600 since the start of December.
Royal Bank of Scotland shed 6.5 percent as the Financial Services Authority (FSA) reported into the near-collapse of the bank in 2008.
Seymour Pierce analyst Bruce Packard, who has a reduce rating on RBS, said he did not think the report altered the investment case for the bank.
UK mining shares fell, with worries about Europe more than offsetting strong copper import data from China.
ENRC dropped 7.4 percent after a weekend news report citing talks with Britain's Serious Fraud Office on corruption allegations revived concerns about coporate governance at the FTSE 100 Kazakh miner.
Inmarsat shed 5.3 percent on concerns over the wireless service run by partner LightSquared.
Across the Atlantic, Wall Street indexes were lower as the U.S. joined the post-summit sell-off, and as Intel said fourth-quarter results would miss its forecast.
The demand for stocks offering shelter from the economic storm was the main reason the UK's benchmark index did not register a steeper fall.
Undeniably the post-bubble landscape is a challenging one ... An extended period of depressed economic activity and a low average returns environment appear inevitable, said Jeff Munroe, chief investment officer at Newton, which has assets under management of some 43.4 billion pounds.
We believe growth opportunities lie in selective emerging economies -- especially those with positive demographics and low debt-to-GDP ratios, as well as in the technology, energy and healthcare sectors.
ON THE DEFENSIVE
Defensive stocks rose: drugmaker GlaxoSmithKline climbed 0.3 percent and drinks firm Diageo 1 percent.
Imperial Tobacco gained 0.5 percent, also boosted by the quashing of a 112-million pound Office of Fair Trading penalty imposed for allegedly restricting competition.
SABMiller (SAB) outperformed the FTSE 100 as a defensively-perceived brewer, and was boosted by an upgrade to neutral from underperform by Exane BNP Paribas.
The broker said risk it had assigned to SABMiller's takeover of Australia's Foster's has now played out.
Exane also floated the idea that a potential combination of Anheuser Busch InBev and SAB was gaining more traction.
With stock valuations beaten down on the back of the global financial crisis, UK-listed companies are proving attractive.
Mothercare rose 4.6 percent, after the Sunday Telegraph said buyout firm Cinven is assessing a 150 million pound-plus takeover of the mother-and-baby products retailer.
London Stock Exchange is buying British publisher Pearson's 50 percent stake in FTSE International for 450 million pounds to take full control of the index firm and ramp up its derivatives business.
Panmure Gordon analyst Alex DeGroote said Pearson had secured a decent premium for a business that was no longer core to its central strategy.
CSR was 9.8 percent higher after the chipmaker said it would end its investment in digital television systems on a chip and silicon tuners, and reiterated its fourth-quarter outlook, which analysts said was a positive step further in right-sizing the business.
(Editing by David Hulmes)