Leading shares fell on Tuesday as a bleak prognosis for economic growth triggered falls in stocks such as Burberry
London's blue chip index <.FTSE> fell 73.58 points, or 1.3 percent to 5,445.46 by 11:50 a.m., while traders also fretted over Italian bond yields, which remained at long-term unsustainable levels following downbeat economic data from Europe.
The 17-nation euro zone economy grew modestly in the third quarter from the second, lifted by France and Germany, but economists said the bloc is almost certainly heading for a recession.
And German analyst and investor sentiment slumped in November, the ninth monthly decline in a row, a survey from the Mannheim-based ZEW economic think tank showed on Tuesday.
That helped push 10-year Italian yields above 7 percent for the first time since Friday when expectations for a new government helped to ease pressure on yields.
Italy must cut its mounting debt pile and boost growth if it is to avoid bankruptcy, which could spell the end of the euro.
As soon as Italian 10-year bond yields traded back above the 7 percent level, we saw a fresh selling wave hit the FTSE 100, Joshua Raymond, Chief Market Strategist, City Index commented.
With so much still at stake in the sovereign debt crisis, which is seemingly at the gates of Madrid now as much as entrenched inside the walls of Rome, investors are happy to sit on their cash and what cash that is at play is being invested into low risk asset classes.
Miners and banks, a gauge of investor sentiment over the outlook for the global economy, weakened.
Both sectors have lost more than a quarter of their value in 2011 on concerns the global economy may fall into recession in part a result of Europe's ongoing debt crisis.
Luxury goods firm Burberry
Seymour Pierce said given the global macro uncertainty currently, it was maintaining full-year 2012 earnings forecasts.
Worsening economic climate in Europe, slowdown in France and increasing pressure on household disposable incomes are all negatives for the retail sector, Silverwind Securities said.
On the FTSE 250 <.FTMC>, troubled telecoms provider Cable & Wireless Worldwide
On the upside, artificial hip and knee maker Smith & Nephew
There was slightly more upbeat news on the UK economy, as Inflation in Britain eased more than forecast to 5 percent in October.
The fall in CPI and RPI this month show that this is not a re-run of the 1970s - Britain is not going back to the days of endemic high inflation, said David Miller, partner at Cheviot, which has assets of 3.5 billion pounds.
Wall Street futures pointed to a lower open for equities in the United States, ahead of data including October producer prices, the November Empire State index, and October retail sales, all due at 1:30 p.m., and September business inventories at 3 p.m.
(Editing by Jon Loades-Carter)