British blue chips closed near session lows on Tuesday as a cheery outlook from insurer Aviva failed to counter weakness among heavily-weighted oil and bank stocks as well as a lower start on Wall Street.
Aero-engine maker Rolls Royce also weighed on the market with a drop of 3.6 percent. Dealers said the stock was taking back some of its 10 percent rise over the four previous sessions and reflecting fresh US dollar weakness, as most aerospace orders are priced in the currency.
By the close of trade, the FTSE-100 was down 18.8 points, or 0.4 percent at 4,499.3 - just off a session low of 4,498.5 points and with banks and oils accounting for around 15 points of the drop.
The move also mirrored a lacklustre start in New York, where the Dow Jones industrial average was down 72 points, despite strong profit reports from large US firms such as Citigroup and Johnson & Johnson.
Market watchers said that while company earnings were broadly meeting expectations, investors were looking for more signs of corporate activity before driving equities higher.
"We're not seeing yet very clear or consistent indications of corporate investment to take on the next phase from the end of the consumer phase, which we've been talking about for two or three years," said Peter Bodycombe, a UK fund manager at Singer & Friedlander.
But most traders were confident the market would get enough encouraging evidence to push ahead over the coming months.
"The underlying caution will remain and people are acutely aware that the market has to justify this higher rating, but there is optimism out there," said Steve Graves, deputy head of dealing at brokers Gerrard. He said the FTSE could hit 5,000 points by the end of the first quarter.
Despite the overall market drop, insurers were among some of the session's biggest gainers after Aviva said prospects for 2004 were encouraging and reported flat new business sales, slightly above expectations.
Aviva shares rose 1.2 percent and sector peer Old Mutual finished up 2.4 percent. Mid-cap listed wealth management firm St. James's Place notched up a 7.1 percent gain ahead of reporting annual sales on Thursday.
But banks fell out of favour, with Barclays down 1.9 percent and Royal Bank of Scotland off 1.8 percent after both were downgraded by analysts at ABN Amro. Analyst changes also hit oil major BP, which fell one percent after UBS trimmed its price target on the stock.
Back on the upside, blue chip Reckitt Benckiser featured with a 1.7 percent gain and earlier hit an all-time high of 1,323 pence. Chartists said the world's biggest household goods maker had broken through technical resistance and could have further to go.
On the FTSE-250 index, chemicals firm British Vita dropped 5.3 percent after revealing its 2003 profits would be at the lower end of market forecasts because of a five million-pound ($9 million) accounting error.
Music company EMI also slipped to close down 2.9 percent. Dealers said investors were booking profits in the stock, which has surged nearly 40 percent since the start of the year and recently touched its best level since July 2002.