Britain's top share index fell to its lowest closing level in a month on Tuesday, led down by banks after shake-ups at Royal Bank of Scotland and Lloyds and poor results from Swiss peer UBS. The FTSE 100 index closed 67.29 points or 1.3 percent weaker at 5,037.21, having surrendered the 5,000 level for the first time since October 2 earlier in the session. It traded as low as 4,985.09.
Upbeat data from across the Atlantic helped the index pare its losses, with new orders received by US factories beating Wall Street expectations and rising 0.9 percent in September. "There's always going to be a bit of profit taking on any sustained move higher and that's certainly what's happening today," said Angus Campbell, head of sales at Capital Spreads.
The index has surged about 46 percent from a six-year low in March, though is still 7 percent below its level in mid-September 2008 before the collapse of Lehman Brothers. Campbell said investors would be keenly awaiting Friday's US non-farm payrolls figures to see whether last week's above-forecast US GDP figures will be complemented by the employment situation.
Banks were hit hardest as Lloyds Banking Group launched a record 13.5 billion pounds ($22 billion) rights issue, and along with rival Royal Bank of Scotland (RBS) agreed to sell off some businesses to limit their reliance on government support. The British Treasury said Lloyds and RBS would between them have to sell businesses equating to 10 percent of the UK retail banking market.
Lloyds shares rose 2.7 percent on confirmation of long-expected plans, while RBS shares slid 7 percent. Poor results from UBS added to the negative sentiment surrounding the sector, which was also hit by a bankruptcy move by US lender CIT and comments from a Federal Reserve official warning about loan losses.
Heavyweight HSBC fell 3.3 percent, while Standard Chartered and Barclays dropped 1.8 percent and 2 percent, respectively. Demand concerns weighed on the mining sector, with investors cautious as the US Federal Reserve began a two-day meeting on monetary policy.
Fresnillo, BHP Billiton, Xstrata and Vedanta Resources shed 1.1 to 2.3 percent. Energy stocks were also out of favour, with BP, BG Group, Royal Dutch Shell and Tullow Oil down 0.6 to 2.5 percent. Among individual movers, Tesco rose 0.5 percent, helped by a rating upgrade to "buy" from Goldman Sachs, which said it had a compelling opportunity to take significant share of the UK retail banking market.
The broker also cited its international exposure as a positive, seeing significant opportunities for further growth in these markets. Downbeat broker sentiment impacted GlaxoSmithKline, off 1.5 percent, with BofA-Merrill Lynch cutting its rating on the drugmaker to "neutral", on the grounds that the stock appeared fully valued. Engine-maker Rolls Royce fell 1.9 percent after the company's interim trading update disappointed some investors, with Evolution Securities repeating its "sell" rating on the stock.
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