Britain's top shares closed at one-month lows on Wednesday, with all but three sectors falling after expectations dimmed of a further UK interest rate cut this year, but volatile PartyGaming bucked the trend to leap almost 10 percent.
Retailer Next led the FTSE fallers, losing more than 4 percent after analysts recommended switching to Marks & Spencer.
Bank of England Governor Mervyn King, who opposed the bank's August rate cut, said he could not promise an anticipated November cut because of mixed economic signals, prompting analysts to suggest that bullish equity investors may have jumped the gun.
"The market has been very complacent in thinking the bank would cut as early as November," said Ken Wattret, an economist at BNP Paribas. "That is not to say the UK economy is out of the woods, but the panic on the high street seems to have dissipated somewhat."
The FTSE 100 index of blue chip shares closed down 38.5 points, or 0.7 percent, at 5,342.2 points, its lowest close since September 13. Weakness on Wall Street, where concerns grew about the outlook for corporate earnings, also weighed on UK stocks.
Coupled with global inflation concerns and an increasingly hawkish US Federal Reserve and European Central Bank, analysts said uncertainty was growing in equity markets but that a sustained sell-off seemed unlikely.
"We have had it as good as it gets - a cyclical recovery, cheap credit," said Philip Isherwood, an equity strategist at Dresdner Kleinwort Wasserstein. "It is probably right to be a little bit cautious, but you can play that by rotating towards slightly less risky parts of the market. That does not mean you dump equities."
Isherwood pointed to pharmaceuticals, oils and mining stocks as areas to watch for further growth.
The banking sector contributed the most to Wednesday's losses, with HSBC off 1.1 percent. Oils took about 9 points off the index even though oil prices traded above $64 a barrel. Traders said investors have made some of their highest gains on oil stocks this year, which means it is the sector that they tend to sell when the market outlook is uncertain.
Fashion chain Next fell 4.1 percent as investors weighed up how it would fare against an improving outlook at rival Marks & Spencer. M&S reported its first sales increase in eight quarters on Tuesday.
"Following a conversation with Next's management, we understand that the company is already in an overstocked position for Christmas," J.P. Morgan said in a research note, as it advised clients to switch into M&S.
Also in the retail sector, mid-cap Burberry fell 7.1 percent after the luxury goods maker - famous for its classic camel, red and black check pattern - posted a fall in first-half sales and said its wholesale turnover would probably continue to fall.
Broker recommendations hit miner Xstrata, which fell 2.9 percent after being cut to "hold" from "buy" by Deutsche Bank. The downgrade came after an agreed take-over of Xstrata's potential bid target, Falconbridge, by the world's second biggest nickel miner Inco.
Stocks going ex-dividend put further weight on the market, with Rexam, Centrica and WPP among those trading without the right to the latest payout.
On the upside, volatile PartyGaming shares provided some support, with the online gaming stock closing 9.8 percent higher after rival gaming firm Sportingbet more than quadrupled its annual profit and said its poker revenues were at all-time highs.
Drugmaker GlaxoSmithKline rose more than 1 percent, adding about 4 points in support of the market after Dresdner raised its rating and price target on the stock.
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