The top share index fell in midday trade Thursday, with financials and miners among the top fallers as strained finances in Europe took a further blow after France's debt auction.
The blue chip index <.FTSE> was down 42.14 points, or 0.7 percent at 5,626.31 by 11:57 a.m. as investors withdrew funds out of riskier assets.
In an auction of 4.02 billion euros of 10-year OAT bonds, France drew bids worth 1.643 times the amount on offer, down from 3.046 times in December, with yields up to 3.29 percent, from 3.18 percent last month.
The debt auction by France, whose triple-A credit rating is under threat, followed a subdued German Bunds auction and a deeply discounted rights issue from Italy's UniCredit
Stefan Angele, head of investment management at Swiss & Global Asset Management which has assets under management of about 75.7 billion swiss francs, said: Our baseline scenario of weaker economic growth but no recession only holds if we see no major shock in the financial sector.
In this context, we must focus on the public debt crisis in the industrialised world and particularly Europe, which currently poses the biggest threat to the global financial system.
With worries over their earnings outlook because of their exposure to Europe's debt crisis, UK-listed banks were lower. Lloyds Banking Group
Other financials with exposure to Europe's debt crisis and the resulting market uncertainty fell too, with insurer Legal & General
ICAP came under more pressure after mid-cap peer Tullett Prebon
UBS issued cautious comment on the sub-sector and said, ahead of ICAP's trading statement on Feb 1, we remain cautious on the IDB which we expect to be affected by bank deleveraging.
Among the miners, whose earnings rely heavily on companies' and governments' ability to dip into their wallets for future developments, Kazakhmys
Sentiment surrounding the miners wasn't helped as Credit Suisse downgraded the European building materials sector to market-weight.
The broker said it viewed sector fundamentals and valuations as unattractive and did not anticipate any improvement in profitability this year.
Credit Suisse also cut UK-listed Irish building materials firm CRH
JP Morgan, separately, upgraded Wolseley to overweight from neutral.
Longer-term we remain confident that margins will recover ... driving strong free cash flow growth and allowing for dividends to flow down to Vodafone, broker Espirito Santo said in a note.
The FTSE was also pressured as U.S. stock index futures pointed to a weaker open with jobs and manufacturing data due out later in the day, ahead of non-farm payrolls Friday.
On the upside, integrated oils and oil-related services and equipment firms outperformed the broader market as investors turned to the sectors' defensive characteristics.
Commodities are another asset class with a decent medium-term risk-reward profile and attractive upside potential driven by secular strong demand. Especially energy (oil) remains in elevated demand and could easily become subject to supply shortages any time, Swiss & Global Asset Management's Angele, said.
Oil major BP
Tech firms were in demand, buoyed by bullish analyst recommendations.
Commercial real estate investment trusts found good support, with traders citing the impact of a Morgan Stanley note on the sector which upgrades ratings for the three firms.
Blue chips Land Securities
(Additional reporting by Tricia Wright and Jon Hopkins)