The FTSE 100 swung into negative territory by midday on Wednesday, as the gloom surrounding Europe's debt situation and downbeat macro economic data took the gloss off some bullish third-quarter updates from UK companies.
Financials fell as concerns over euro zone debt contagion lingered while Greek Prime Minister George Papandreou braced for a potentially frosty meeting with other European leaders.
Despite Papandreou winning the backing of his cabinet after his shock announcement that he intended a referendum on the 130 billion euro (111 billion pound) bailout package, investors remained wary of the potential fallout of such a move.
Even before Papandreou's announcement investors were beginning to raise concerns over the details over the bailout plan, Jimmy Yates, head of equities at CMC Markets, said. A default by Greece could be potentially catastrophic for the euro and the banking system.
Uncertainty at the top of Lloyds
Pim van Vliet, manager of the European Conservative Equities fund at Robeco, which has around 1.5 billion euros of assets under management in its low-volatility portfolios, said the market's recent rally had been based on low-quality gains.
He said investors should look to low-volatility, low-beta and high dividend-yielding stocks in sectors such as utilities, telecoms and consumer staples for better long-term returns.
Having gained just over 8 percent in October, the UK's benchmark index has surrendered more than 5 percent in the last four trading days and by 1117 GMT was 2.34 points or 0.1 percent lower at 5,419.23, albeit in light volumes.
The index is now back in the range -- 5,000 to 5,450 -- that it had previously struggled to break out from between August and October, when investors were baying for politicians to bring an end to the euro zone crisis.
Ex-dividend factors knocked a hefty 12.83 points off the index, with BP
Adding to the gloom were disappointing October manufacturing data out of the euro zone, which suggested the downturn was even deeper than previously thought.
And in Britain the manufacturing sector contracted at its fastest pace in more than two years in October as new orders plummeted, adding to signs the country is teetering on the brink of recession.
Gains, however, were seen in miners <.FTNMX1770> after recent falls and in tandem with metals, with tentative hopes the U.S. federal will prepare financial markets for further monetary easing, even if it refrains from any new stimulus just yet, later on Wednesday.
The FTSE 100 saw some support as U.S. index futures pointed to a firmer open on Wall Street ahead of a batch of U.S. data including October's ISM report and September construction spending numbers which will both be released at 1500 GMT.
Some upbeat earnings also helped UK-listed stocks.
West Africa-focussed miner Randgold Resources
Fashion retailer Next
Brokerage Seymour Pierce said the update was better than most had feared and Next's valuation does not reflect its future growth potential and cash generation, repeating its buy rating on the stock.
(Editing by David Holmes)