The FTSE 100 fell on Tuesday as concerns over a debt deal for Greece and gloomy broker comment hit financial stocks, pulling the index back from the previous session's six-month closing high.
The UK's benchmark index <.FTSE> fell 45.47 points, or 0.8 percent, to 5,737.09.
A rally that began in early December had seen the FTSE 100 gain around 7 percent in just over a month and left UK-listed stocks precariously close to overbought levels, according to the relative strength index.
Traders said the session's falls were weak compared with recent gains, and more of a technical nature, but the catalyst was Greek debt talks, which are set to go to the wire after euro zone finance ministers on Monday rejected an offer made by private bondholders to help restructure Greece's debts, raising the spectre of a chaotic default.
Only back in November, markets would have collapsed on such news, said Louise Cooper, markets analyst at BGC Partners.
The lack of reaction in the markets tells us a lot about investors' mood at the moment -- optimistic and willing to take on risk. Clearly at the moment, being bearish is like swimming against the tide.
The FTSE volatility index <.VFTSE> is down around 15 percent in 2012.
That sentiment was backed up by the bond market as the cost of insuring against a Greek default continued to fall.
Technical analysts, however, said the recent rise in the equity market, coupled with low volatility and low volume presents the FTSE with a hurdle to clear before it can continue the rally.
Those companies acutely exposed to the euro zone debt crisis, such as the banks <.FTNMX8350>, which have gained 15 percent in 2012, compared with a 3.8 percent rise on the FTSE 100, were the top fallers.
Despite higher returns in Retail and Business Banking, we believe that the low returns in Corporate and Investment Banking may prevent a material re-rating, the broker said.
Other financials slipped after RBS
Fund firm Ashmore
Fund manager Man Group
Despite the recent rally in equity markets, broader growth issues in Europe remain a weight on companies' earnings growth outlook, despite a surprise upturn in a service sector survey.
In the UK, public sector debt broke above the trillion pound level for the first time on record, despite austerity measures that have threatened to drag Britain into recession.
British military equipment maker Chemring
Blue-chip defence firm BAE Systems
Miners <.FTNMX1770> fell on growth concerns, as investors banked some profits on the sector, which has rallied 14 percent in the last month.
Also weighing on the FTSE 100 were Wall Street futures, which pointed to a lower open in the United States, though there is no major economic data due to be released there on Tuesday.
On the upside, Weir Group
The broker said the 14 percent fall in Weir shares versus its sector on the back of falling gas prices had been exaggerated, and while Weir was likely to be volatile in the near term, it saw a number of potentially positive catalysts.
As riskier stocks fell, defensives were on the rise, with utilities International Power
British Gas owner Centrica
(Editing by Will Waterman)