The nation's leading share index dipped into negative territory on Wednesday, pulled down by a set of ex-dividend stocks, while fears of another blow-up in the euro zone crisis kept investors nervy ahead of a Spanish debt auction.

The FTSE 100 index <.FTSE> closed down 21.66 points, or 0.4 percent, after two days of gains, as a number of stocks moved into the ex-dividend period when investors will no longer qualify for the latest payout.

The index was also weighed down by FTSE banks <.FTNMX8350>, which shed more than 1 percent as investors pondered the implications of Thursday's Spanish debt auction, with Royal Bank of Scotland and Lloyds banking group among the biggest fallers.

Data on Spanish banks' bad loan burden fuelled doubts on Wednesday about whether they can survive without outside help, given the government's struggle to manage its own finances.

Spain is certainly setting the tone for the rest of the week and the market remains cautious while many investors are keeping the powder dry on the sidelines at the moment ahead of tomorrow's bond auction, said Craig Melling an investment manager at Redmayne-Bentley.

Losses were, however, slightly supported by miners, which lifted the index, adding 3 points by the close, with Fresnillo the top riser with a gain of 3 percent.

The miners continue to underpin what seems to be a fragile market with the financials being a continuous drag surrounding the Spanish debt auction, Melling added.

But shares in copper miner Kazakhmys bucked the sector trend, falling 3.7 percent as ING downgraded its recommendation to sell from hold on concerns over higher costs, lower volumes and further capex increases.

Kazakhmys also traded ex-dividend on Wednesday, a factor which overall knocked 9.10 points off the broader FTSE index.

Resolution , BAE Systems and Legal & General , led the blue chip fallers list, all also trading ex-dividend on Wednesday, all falling of more than 4.5 percent.

TESCO FALLS

Shares in Tesco pulled back from a 2 percent jump seen in early trading before dipping during the day, ending up with a 2 percent fall as the investors took a deeper look the world's No.3 retailer's announcement to slash expansion plans for its main British business.

The retailer said it would spend over 1 billion pounds on improving existing stores as it battles to recover from a shock profit warning late last year.

Tesco shares have fallen 18 percent in 2012, compared with a 3.5 percent gain by the FTSE 100, after its profit warning and a poor performance over the Christmas period.

There is a lot of things listed 'to do' (for Tesco) and doing them will by definition take time, said Shore Capital analyst Clive Black, adding that he thought the group should stop all new store openings in Britain for three years while it sorts out its problems.

Some bearish news for equities came from the Bank of England, after it released minutes its April meeting on Wednesday, which, combined with a stark warning on inflation from deputy governor Paul Tucker on the same day, signalled a sharp change in tone that could bring forward expectations for interest rate rises.

Monetary policy will underpin the recovery so long as that remains consistent with anchoring inflation expectations in line with achieving the 2 percent target over the medium run, Tucker said in a speech. We shall not let that slip.

That could mean the bank is poised to turn off its money-printing press next month, fearful that inflation will now be greater than expected and prepared to gamble that Britain's economic recovery remains on track.

Merrill Lynch added to the bearish tone by dampening its forecast for equities following a strong first quarter.

We do not forecast equity markets to have as strong a second quarter as was experienced in the first quarter of this year or the last quarter of 2011, the wealth management firm told clients in its quarterly review.

(Editing by Ruth Pitchford)