The top share index fell back on Monday, led by weaker miners and energy issues, as commodity prices retreated under the influence of a firmer dollar and worries over demand from China, with banks also under pressure after recent gains.
Miners <.FTNMX1770> and integrated oil <.FTNMX0530> stocks took over 30 points off the UK blue chip index, as they tracked weaker copper and crude oil prices after Japan intervened to tame the high-flying yen.
The move, designed to counter excessive speculation that has been hurting the world's third-biggest economy, strengthened the greenback, making dollar-denominated commodities more expensive for buyers holding other currencies.
The sector was also knocked by concerns over demand from Asia, with China's steel industry association saying the country is still unwilling to buy iron and stockpiles of expensive ores remain stubbornly high.
At the close, the FTSE 100 index <.FTSE> was down 158.02 points, or 2.8 percent at 5,544.22, its biggest percentage fall since September 22.
However, the blue chip index still posted a gain of 8.1 percent for October, its biggest monthly gain since July 2009, and snapping a five-month losing streak.
Equity markets look seriously overbought after this month's rise ... Given the technical condition of the markets a bout of selling on any excuse would not be unexpected, said Mike Lenhoff, equity strategist at Brewin Dolphin.
Banks <.FTNMX8350>, which gained strongly in October, fell back as risk appetite faded, with part-state-owned Royal Bank of Scotland
Sentiment in the sector was cautious as investors began to focus on the details of the plan put forward by European leaders last week to contain the region's debt crisis, in particular how the extended European Financial Stability Facility (EFSF) would be funded, ahead of a G20 summit starting on Thursday.
U.S. blue chips <.DJI> were 1.6 percent lower by London's close, with financials hit by news that futures broker MF Global
In London, there were only three FTSE 100 gainers, led by GlaxoSmithKline
Food retailer WM Morrison
But equity market commentators were not all gloomy.
The eurozone's sovereign debt problems have been all-consuming. We suspect the equity market's focus on this issue has diverted attention away from other fundamentals, said Nomura strategist, Ian Scott in a note.
Only time will tell whether the eurozone politicians have done enough to divert attention from the sovereign crisis, but if investors do start to view the eurozone as a more integrated region, aggregated fundamentals are not too bad, Scott added.
(Additional reporting by David Brett; editing by David Cowell)