The top share index fell on Wednesday, as the pre-Greek bailout euphoria waned and investors refocused on the stressed state of the global economy and returned to buying safer haven assets.
London's blue chip index <.FTSE> shed 30.35 points, or 0.5 percent to 5,897.85 by 12:07 p.m. Falling back within the tight range established earlier in February between about 5,850 and 5,920.
The cautious mood was not helped by Fitch ratings agency, which downgraded its credit rating of Greece following the bailout.
The move will hasten deleveraging, which although seen as positive move in the long run, will bring the pain of slow growth in the short-term as lending remains limited.
De-leveraging can see periods of euphoria, that is until you realise that the debts are still there, a London-based fund manager said, describing the recent rally in equity markets, which he added were also helped by some snippets of upbeat macro economic data, particularly from the U.S. and Greece avoiding a messy bailout.
As soon as investment banks see some improvement in economic data they see it as a cyclical environment, we still view the economic outlook as stressed and volatile, he said.
For that reason he remains defensively positioned in equities, although he has taken a slightly more riskier view on government debt, albeit with option hedges on European and U.S. bonds, should the outlook deteriorate further.
Retailers remain under pressure as Deutsche Bank said the uncertainty over how long the current consumer recession is likely to last in the face of governments' austerity measures, Europe's debt crisis and high unemployment, leads it to recommend investors to stick to quality cyclicals among general European retailers like Kingfisher
Marks & Spencer
A more downbeat view of Vodafone UK prompted Credit Suisse to cut its target price and estimates on the mobile telecoms firm. Index heavyweight Vodafone
Vedanta gained 7 percent on Tuesday on media reports of a potential consolidation of both its Sterlite and Sesa Goa minorities, which RBC said would be a positive move for Vedanta's corporate strategy and help the company from a consolidation perspective going forward.
Ex-dividend factors knocked 3.5 points off the FTSE 100 on Wednesday, with Carnival
Europe's largest drinks can maker Rexam
M&A continues to be a driver among equities as depressed valuations of some businesses attract cash companies looking for earnings accretive acquisitions.
Shell's shares were marginally lower, down 0.3 percent.
The surging price of oil on the back of numerous supply disruptions continues to be a weight on the broader economy, fuelling inflation fears and depressing stocks such as International Airlines Group (IAG)
Silverwind Securities advised investors to sell IAG versus BP
Adding to the downbeat mood, Wall Street futures pointed to a lower open, with the Dow having closed off multi year highs on Tuesday.
U.S. January existing home sales data, due at 1500 GMT, will fall under the spotlight on Wednesday, with investors keen to see whether the pick-up in U.S. activity, as demonstrated in recent upbeat data releases, was sustainable.
(Editing by Mike Nesbit)