The top shares fell Monday, led lower by banks and miners, after a G20 meeting of leading economies failed to reassure investors over financial help to ease euro zone debt crisis.
In the meeting over the weekend, the G20 told Europe it must commit extra money to combat the crisis before seeking further assistance. This raised pressure on Germany to drop its opposition to a bigger European bailout fund.
There seems to be something of a crack developing between Germany and the rest in terms of the next round of funding, but probably most importantly the firewall, Richard Hunter, head of equities at Hargreaves Lansdown, said.
It seems as though most of Europe wants to get the firewall to such a stage that contagion can be put to one side once and for all, but we don't seem to have moved any closer to that after the meeting at the weekend.
Also hurting sentiment were worries that high oil prices could hit company earnings and global growth.
UBS, however, was relatively sanguine about the recent rise in crude prices, arguing they can be sustained if they are accompanied by stronger economic growth globally.
Banks <.FTNMX8350>, whose share prices are closely correlated to the twists and turns of the debt crisis, were among the worst performing sectors.
Strength in Asia helped HSBC cope with the European debt crisis that has plunged many rivals into huge losses. Its Chief Executive Stuart Gulliver called the euro zone the main economic worry, seeing zero GDP growth this year across the region.
Mining stocks <.FTNMX1770> tracked metals prices lower on persistent fears over Chinese demand, rising oil prices and a debt-strained Europe.
The UK benchmark <.FTSE> was down 40.52 points, or 0.7 percent, at 5,894.61 by 0945 GMT.
Atif Latif, director of equities and derivatives at Guardian Stockbrokers, remained bearish on the FTSE 100, which has been consolidating gains since hitting a seven-month closing high of 5,945.25 on February 20. He sees downside risk for an 8-10 percent correction.
On the upside, BP
We continue to see settlement as the most likely means of resolution, UBS said, adding it sees a net cost of around $30 billion to BP as most likely.
BP is ranked the cheapest among its peers on valuation grounds, trading on a 12-month forward price-to-earnings ratio of 7.3, according to Thomson Reuters StarMine data.
Valuation momentum, where upgrades to analyst estimates and/or recommendations tend to correlate to future upgrades and lead future price moves, for BP is second-highest among European oil and gas firms <.SXEP>.
UBS says it sees value in BP shares but the legal risk will limit upside in the near term.
(Additional reporting by David Brett; Editing by Erica Billingham)