The FTSE sank to their lowest close in more than a week on Thursday, having endured another choppy session, as investors jostle for position ahead of a crucial European Union summit outcome on Friday.
Sentiment was hurt when European Central Bank President Mario Draghi cooled market expectations about the prospect of an acceleration in ECB bond purchasing, although the bank did cut interest rates by 25 basis points to 1 percent.
The Bank of England, meanwhile, decided to keep interest rates at 0.5 percent, a move widely anticipated by investors.
I think the market has had a terrific rally going into the ECB meeting and again the market is very optimistic that European politicians will sort out the crisis in the next few days, said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million (320 million pounds) of assets.
Experience has taught me that this is probably very wishful thinking and yet another meeting is a more likely outcome.
Against a backdrop of heightened investor uncertainty, traders noted moves to diversify portfolios by offsetting riskier assets with defensive sectors such as tobaccos and pharmaceuticals -- the best performers on Thursday.
British American Tobacco topped the blue-chip leader board, up 1.5 percent, with peer Imperial Tobacco ahead 0.7 percent, and drugmaker GlaxoSmithKline 0.8 percent stronger.
As investors focused on the EU summit, and the possibility their hopes for a credible solution for stopping the debt crisis from spreading would be dashed, commodity stocks and banks came under heavy pressure.
Standard Chartered shed 1.4 percent after the Asia-focused bank said income growth will be just below its 10 percent target this year as the euro zone debts crisis slows activity in its key Asian markets, adding to problems in India and Korea.
The FTSE 100 ended down 63.14 points, or 1.1 percent, at 5,483.77, its lowest close since November 29, after a see-saw session, reversing from an intra-day high of 5,605.27.
You could be seeing people just positioning themselves -- a bit of risk aversion, a bit of short covering, just in case investors don't get what they're hoping to see, Angus Campbell, head of sales at Capital Spreads, said.
Campbell added that in the case investors were disappointed by the summit's outcome, the FTSE 100 could conceivably drop back towards its lows for the year, around the 5,000 level.
Credit Suisse said it is working on the assumption that there will be a difficult recession in Europe, but is no longer factoring a global recession into its valuations.
The bank maintained its market weight sector stance on pan-European Capital Goods, but has cut its ratings for five firms, as it seeks stocks with low exposure to Europe, and adjusts target prices.
Among these stocks is UK-listed GKN, downgraded to neutral, and IMI, cut to underperform. Their share prices suffered respective falls of 3.4 percent and 4.5 percent.
Citigroup said the sovereign and banking crisis in the euro zone will lead to a protracted recession.
The bank said it favoured emerging market plays in the developed world and is overweight in British equities due to its heavy weighting of commodity companies and remains neutral on Europe excluding Britain, given the current concerns.
(Additional reporting by David Brett and Jon Hopkins; Editing by Jon Loades-Carter)