The top shares were lower on Tuesday morning, with relief at Greece finally clinching a second bailout deal overshadowed by doubts about the plan's viability.
The blue-chip FTSE 100 index <.FTSE> was down 13.09 points, or 0.2 percent, at 5,932.16 by 0940 GMT, having advanced 0.7 percent in the previous session to a seven-month closing high.
While sentiment was supported by the 130 billion euro rescue that averts a default by Greece next month, the deal was largely factored into markets after recent rallies.
The plan's real test lies in the months ahead when the unpopular austerity measures wrought from Greece to obtain the aid package start to kick in.
While analysts say contagion threat has diminished, it still poses a big threat, with Portugal and Spain among countries potentially at risk.
Atif Latif, director of equities and derivatives at Guardian Stockbrokers, remained bearish on the short-term outlook for the FTSE 100, which he believes will test the 5,500-5,550 area.
Even after China's move on Saturday to ease policy through cutting the amount of cash banks must hold in their reserves, Latif said he was mindful of the possibility of a hard landing, which would have a major market impact.
Furthermore, he was concerned about the impact the price of oil, currently elevated after a cut in Chinese and European imports of Iranian oil, would have on the pace of economic growth and corporate profitability.
However, expectations have been running high that the European Central Bank's long-term refinancing operation, due for a second round on February 29, will give equity markets another shot in the arm.
Phil Roberts, chief European technical strategist at Barclays Capital, said the FTSE 100 will struggle over the next few months, finding it difficult to break through major resistance at 6,100, its highs in early 2011.
Buyers came in for riskier assets on Tuesday after the outcome of the Greek negotiations.
Miners <.FTNMX1770> added most points to the blue-chip index, having enjoyed solid gains on Monday after the China policy-loosening move raised the prospect of improved demand from the world's most voracious consumer of raw materials.
Banks <.FTNMX8350>, also found favour, with Barclays
Barclays was hit by rising cost of equity and falling return on equity in 2011. We think this could now reverse with powerful implications for valuation, the bank said in a note.
Bullish broker sentiment also helped propel car insurer Admiral
We expect full-year 2011 results on March 7 to represent the first step for Admiral towards regaining market confidence that bodily injury challenges are being resolved, with improved clarity expected to provide upside risk to earnings expectations, Credit Suisse said in a note.