The FTSE-100 index fell on Monday, with the absence of a bond deal in Greece and fresh concerns about the debt problems of other euro zone nations keeping investors in cautious mood and hitting risky sectors such as banks and miners.
London's top share index <.FTSE> was down 0.8 percent at 5,685.09 points at 0900 GMT, adding to Friday's losses and retreating further from a six-month closing peak of 5,795.20 set on Thursday.
Banks <.FTNMX8350> -- which has started 2012 on a strong footing after a lacklustre 2011 -- were the top fallers on Monday, on concern that extra liquidity injections from the central banks have not fixed the sector's fundamental problems.
Banks continue to remain very wary of lending to each other, so the banking sector crisis has not been resolved, Jeremy Batstone-Carr, head of research at Charles Stanley, said.
Perhaps it was a little bit premature to dash into risk and a cautious approach is best.
Miners <.FTNMX1770> also moved into the red, with Evraz
With no major UK data due, investors' focus was firmly on Brussels, where EU leaders meet at 2 p.m. to sign off a permanent euro zone rescue fund at a summit expected to be overshadowed by unresolved Greek debt problems.
To avoid a chaotic default -- which could have grave ramifications for sentiment and financial systems across the globe -- Greece must secure a deal with its private bond holders and persuade international lenders that it is serious about reforms in order to secure much-needed cash.
An agreement with private bond holders appears to be close, but investors -- who had hoped for a deal a week ago -- are likely to remain in a cautious mood until it is finalised.
The uncertainty about the near term fiscal outlook for Greece is here to stay. In this regard, today's EU summit could fail to lastingly appease investors' concerns, JPMorgan's analysts said in a research note.
Fresh tensions between Greece and the euro zone's biggest economy Germany over the weekend are unlikely to help sentiment, while problems are also seen in other euro zone nations.
Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday, while investors have been ditching Portugal's stocks and bonds in the belief it will need a second bailout.
Higher euro zone government bond yields ahead of a 10-year Italian debt auction, and a weaker euro chimed in with a picture of heightened concerns about the euro zone.
For the FTSE, the charts also pointed downwards.
Technical indicators are hinting an overbought market and the possibility of a downside movement in the coming sessions, Guardian Stockbrokers said in a note, highlighting support levels at 5,590 and 5,520.
On the upside, mid-sized British pharmaceutical firm BTG
(Reporting by Toni Vorobyova, Editing by Mark Potter)