The top share index fell back on Friday following two days of gains, led lower by banks, which saw some profit-taking as nervous investors await Q1 earnings from their U.S. peers, with JPMorgan and Wells Fargo due to report on Friday.

The numbers, this year's first from the U.S. financial sector, will set the tone for the earnings season. Markets are already pinning much on hopes for a steady first quarter, in particular from lenders.

We've had a fairly OK start to the U.S. earnings season from Alcoa and Google this week, but it's the banks that everyone is waiting for, so some nervousness is understandable, said David Morrison, market strategist at GFT Global.

At 1039 GMT, the FTSE 100 index <.FTSE> was down 26.79 points, or 0.5 percent, at 5,683.67, having gained 2 percent over the previous two sessions to almost recoup a sharp 2.2 percent drop at the start of the week.

Weakness in the banks <.FTNMX8350> was a big drag on blue chips, with the sector retreating after gains of about 3.5 percent over the past two trading sessions. Royal Bank of Scotland was the worst performer, down 2.5 percent.

Falls by heavyweight drugmakers were an even bigger weight, with GlaxoSmithKline off 1.3 percent, while other sectors seen as defensive were also weak, including tobacco and drinks firms.

Among individual blue chip fallers, accounting software group Sage fell 1.8 percent as Jefferies cut its rating to hold from buy after cutting its growth expectations.

In the absence of any pronounced end-market recovery, we are tempering our group growth assumptions for FY12E, with a modestly improved EBIT margin expectation, the broker said.


Strength in metals and mining stocks <.FTNMX1770> helped limit the blue chip falls, with the sector carrying over a late rally from Thursday which had been fuelled by rumours China, the world's biggest metals consumer would post strong growth data.

In the event, the Q1 GDP numbers released on Friday disappointed those expectations, with China's economy growing at its slowest pace in nearly three years in the first three months of 2012.

The rumours about China GDP proved to have been entirely misinformed ... but (China) remains on the steady glide path towards a soft landing, said Ian Williams, equity strategist at Peel Hunt.

Copper prices were only modestly lower, however, down 0.1 percent after the Chinese data, with the focus shifting to hopes that some key U.S. economic pointers will provide relief on Friday the 13th.

March's consumer price index will be released at 1230 GMT, with U.S. inflation seen easing back to 2.7 percent year-on-year from 2.9 percent in the previous month.

And the first reading of the Reuters/University of Michigan consumer sentiment index for April will be released at 1355 GMT.

Ahead of that data, U.S. stock index futures pointed to a lower open on Wall Street, retreating after strong gains on Thursday, with investors nervous ahead of the bank earnings and a speech by Fed chairman Ben Bernanke.


A rally by energy heavyweight Royal Dutch Shell , up 0.3 percent, also provided underlying support for the UK blue chip index, with the stock regaining some ground after falls on Thursday on Gulf of Mexico oil spill fears.

JP Morgan said the market reaction to the oil sheen news looked overdone, although until the facts are known that is how the market now reacts to environmental risk.

Supermarket group WM Morrison , up 0.6 percent, also bucked the weak trend after the Financial Times said the firm plans to announce a stores revamp, with the stock also supported by an upgrade to buy by Berenberg on Thursday.

(Editing by Catherine Evans)