The top share index closed lower Thursday after moves to bring stability to the governments of Greece and Italy failed to soothe concerns over euro zone debt contagion.
Riskier assets such as commodity and banking stocks led the fallers, as the FTSE 100 <.FTSE> shed 15.56 points, or 0.3 percent, to 5,444.82.
Volumes were weak as many investors steered clear of the volatile market, which swung in a near-140 point range.
The FTSE volatility index <.VFTSE>, a gauge of investor fear, is now up more than a third this month as the euro zone's debt problems have claimed the scalps of the Greek and Italian premiers. The index had fallen sharply in October when a solution to the debt crisis appeared imminent.
Miners <.FTNMX1770> and integrated oils <.FTNMX0530> swung violently as investor sentiment ebbed and flowed with the news coming out of Europe, but both ended the day lower.
In an attempt to stave off economic meltdown, Italy moved closer to a national unity government and Greece named former European Central Bank vice-president Lucas Papademos as head of its new crisis coalition.
These moves represent the start of a potential new trend in crisis management to jettison unpopular politicians and their baggage and replace them with neutral senior bureaucrats on an interim basis to enact and implement necessary reform measures, said Colin Cieszynski, a market analyst at CMC Markets.
Azad Zangana, European economist at Schroders, said: By our estimation, Italy will need to raise some 275 billion euros in 2012 to repay maturing debt, meet interest payments and pay for public services.
The amount represents a huge 17 percent of its existing outstanding debt, which, given the current negative momentum, will be a near impossible task. The outlook for the euro zone economy is now significantly more negative and politicians have missed their opportunity to prevent a European credit crunch.
Banks fell with global lender HSBC
As expected, the Bank of England left policy unchanged, despite growth concerns.
In further signs of stress within the European banking sector, France extended its short-selling ban on the shares of 10 financial institutions by three months. That came after Credit Agricole
Car insurer Admiral
Gains on Wall Street helped prevent steeper losses on London's FTSE 100, as U.S. claims for unemployment benefits fell last week to their lowest since early April, pointing to a slight improvement in the economy.
On the upside, credit data firm Experian
Wm Morrison Supermarkets