Banks pulled Britain's FTSE 100 share index lower by midday on Thursday, as doubts crept in over whether Greece will get its next bail-out package from the EU and IMF and as credit ratings agency Moody's warned of potential downgrades for 17 global banks.
London's blue chip index fell 41.77 points, or 0.7 percent to 5,850.39 by 12:01 p.m.
Volumes were again thin, at just 34 percent of the 90-day average, and the index remained in the tight range which has persisted since early February of between 5,850 and 5,900 points, reflecting the market's caution as the Greek debt crisis plays out.
Wall Street futures also pointed to a weaker opening later on Thursday as acrimony grew between Athens and euro zone partners led by Germany over Greece's urgently-needed 130 billion-euro bailout.
The spectacle of an ugly fall-out between Greece and its euro zone cousins has caused the FTSE to drop, a London-based trader said.
In another sign of the impact of the euro zone government debt crisis spreading throughout the global financial system, Moody's said it may cut the credit ratings of 17 global and 114 European financial institutions.
Among the UK-listed banks under the threat of the downgrades from Moody's were HSBC and Barclays, down 0.9 and 0.3 percent respectively.
Reflecting Moody's concerns, Societe Generale, France's second-biggest listed bank, warned of fresh pain ahead in 2012 after a grim fourth quarter as it battles the European economic slowdown.
The downbeat macro-economic sentiment weighed on miners too, which fell for the third successive session.
The sector had gained 30 percent since late 2012, but Citigroup switched to a bearish stance on the sector on Wednesday believing the rally would run out of steam as spot commodity prices still point to earnings downgrades.
Citigroup, however, said while indexes are due for a period of consolidation, it saw a further 11 percent upside in global equity markets, with overweight stances on financials, IT and consumer staples, and regions such as the emerging markets and the UK.
Louise Cooper, market strategist at BGC Partners, said options traders also seem to be backing more resilience on the UK's benchmark index, with the FTSE 100 seeing more call buyers than its, suggesting slightly more market confidence.
Investors who want to buy protection from a fall in the value of their portfolios buy put options, those that seek to profit from a market rally, buy call options.
The tough economic backdrop, however, continues to test the sustainability of earnings from London's blue chip companies, with the markets punishing those that miss expectations and rewarding those that surprise on the upside.
BAE Systems fell 3.5 percent after Europe's biggest defence contractor reported a 7 percent drop in full-year profit, hit by continued cuts to military spending by the United States and Britain, and forecast flat sales in 2012, prompting Investec to cut its underlying forecasts by 5 percent.
International Airlines shed 2.2 percent as Deutsche Bank cut its earnings forecasts on the owner of British Airways and Iberia by up to 31 percent ahead of the company's full-year results which are due on February 29.
Kingfisher fell 1.2 percent, having closed at their highest level in nearly eight months in the previous session, after Europe's biggest home improvements retailer said it would meet forecasts for a 20 percent rise in year profit.
The Kingfisher share price's 14-day relative strength index has run up to a reading of 70 percent, which is a 10-month high and for technical analysts indicates the shares have hit overbought territory.
On the upside, Reed Elsevier rose 1.7 percent after the Anglo-Dutch publishing and events group reported a rise in full-year profits and said it expects to generate more revenue and profit growth in 2012.
The majority of the top gainers on the FTSE 100, however, were defensive stocks such as Imperial Tobacco and utility Severn Trent on Thursday.
(Editing by Greg Mahlich)