The top shares index hit a seven-week closing low on Tuesday, led lower by energy stocks on worries slower U.S. growth would crimp demand for crude while Commerzbank's funding concerns hit Royal Bank of Scotland and Lloyds Banking Group.

The U.S. economy grew more slowly than previously expected in the third quarter, and the news hurt UK-listed oil and gas shares, which fell 1 percent.

RBS and Lloyds also weighed on the market, down 5.8 percent and 4.4 percent respectively, with traders citing concerns that the two banks may need to raise more funds after sources said Germany's Commerzbank may need 5 billion euros (4.3 billion pounds) more capital.

The lack of management at the top is really a concern for Lloyds. Commerzbank's comments this morning obviously undermined the weaker of the banks, such as those depended on funding. Lloyds does need a lot of funding, Jawaid Afsar, trader at Securequity, said.

However, he said he was looking to buy Lloyds shares on a very short-term basis after they have fallen more than 20 percent in the past seven sessions and are in oversold territory with its 14-day relative strength index at below 30.

Generally looking at the market at a macro level, it is actually a sell. I don't think the market can withstand all the negative news, Afsar said.

Apart from slower U.S. growth, mounting concerns over the euro zone sovereign debt crisis and the downbeat corporate outlook also added to investors' concerns.

FTSE 250-listed Thomas Cook lost three-quarter of its value after the tour operator said it had initiated fresh talks with its banks after a further deterioration in its trading performance and cash position left it in danger of defaulting on the terms of its borrowing.

Peer TUI Travel shed 9.2 percent.

The FTSE 100 <.FTSE> fell for the seventh straight session on Tuesday and closed down 15.78 points, or 0.3 percent, at 5,206.82, after trading as high as 5,281.95. The UK benchmark has lost nearly 12 percent this year on worries over slower global growth and the euro zone debt turmoil.

Growing concerns over the currency bloc's debt problems have increased volatility in the FTSE 100 since August, as traders did not want to hold their position for too long for fears of being caught out.

Daily swings in the UK benchmark exceeded 2.5 percent for more than half of the 80 trading sessions since the beginning of August. However, there were only two such volatile trading days in the first seven months of the year.

I always go home neutral. I can play things intraday, but I wouldn't know what tomorrow's going to bring. I have no clue and I think a lot of people are doing the same, a London-based trader said.

Nevertheless, daily wild swings in the stock markets were more evident in continental Europe. Since the start of August, daily swings in Euro STOXX 50 <.STOXX50E>, the euro zone's blue chip index, exceeded 2.5 percent for 65 out of the 80 trading days. That compared with 34 trading days for the U.S.'s S&P 500 <.SPX> and just seven for Japan's Nikkei average <.N225>.

Volatility indexes, however, were relatively much calmer.

A lot of volatility traders are being cautious. What they are trying to do is to trade the range, mostly with a long tail risk bias ... particularly since the start of August, people are more willing to buy volatility either for hedging with puts or put spreads or using more direct volatility products, said Gerry Fowler, head of equity and derivative strategy at BNP Paribas.

Volatility traders get interested when short maturities in the U.S. fall below 25-30 percent and 30-35 percent on the European market. That has served as a floor for volatility in the last couple of months ... There aren't too many investors doing buy-and-hold or sell-and-hold volatility strategies right now.

The FTSE 100 volatility index <.VFTSE>, which tends to move inversely to the UK blue-chip index, fell to below 30 percent though pretty much trapped in a range since November, while the Euro STOXX 50 volatility index <.V2TX> eased to just below 40 percent on Tuesday.