Top share index fell to a two-month low on Thursday, reversing modest early gains as investors closed positions ahead of a long weekend with concerns over rising euro zone debt costs stifling risk sentiment.

By 12:20 p.m., the FTSE 100 index was down 24.00 points, or 0.4 percent, at 5,680.13, having dropped a hefty 2.3 percent on Wednesday, as a volatile week's trading was set to end early with markets closed on Friday and Monday for the Easter break.

This kind of fall often happens ahead of a long bank holiday - the market has been long and everybody panics out because they don't want to hold their positions over a four day period, Andy Ash, head of sales at Monument Securities, said.

We've also had a few peripheral euro zone issues that are worrying people as well.

The banking sector led the charge downwards, as market concerns over the stability of Europe's finances mounted due to a jump in Spanish bond yields after a poorly received bond auction on Wednesday as well as weak economic data.

Shares in Barclay's , which has high exposure to Spain with over 100 branches in the debt-laden country, fell 1.2 percent to over a two-month low, while sector peers Lloyd's and Royal Bank of Scotland were also among the biggest losers, down 2.5 percent and 1.7 percent respectively.

Global banking heavyweight, HSBC , was the second biggest drag on the FTSE, knocking 3.3 points off the index.

The Bank of England left its monetary policy on hold as expected earlier on Thursday, prompting little change on the index, but a shock fall in British factory output proved a setback to the miners, another heavyweight sector, earlier in the session.

The beaten-down mining sector had been making up for Wednesday's 1.5 percent fall, helping to pull the index into positive territory in early trading. But miners fell sharply after data showed manufacturing output saw its biggest monthly fall in almost a year in February.


Britain's blue-chips recouped two-thirds of 2011's index loss in the first quarter, but most of the gains were achieved in the first two months of the year with the index performing more erratically in March and early April

These market jitters are reflected in the FTSE Volatility index <.VFTSE>, which measures expected swings on the FTSE 100. The index shows volatility up nearly 19 percent since Monday having fallen 23 percent over the first quarter.

These sharp swings can be explained in large measure by the upcoming holiday, Paul Mumford, a fund manager at Cavendish Asset Management, said

With people away ahead of Easter there is much more volatility than you would have otherwise. Today's see-saw is also partly due to people closing positions that they might have sold yesterday, Mumford said.

The biggest FTSE 100 gainer was Ashmore Group , ahead 3.8 percent after UBS upgraded the fund manager to buy from neutral and also raised its estimates and target price for the stock ahead of its third-quarter statement on April 12.

We believe that Ashmore retains attractive long-term growth characteristics, UBS says in a note, highlighting significant structural opportunities for growth in EM (emerging market) assets.