Uncertainty on the outlook for the US economy after weak retail sales and jobs data dented commodity prices, hitting miners and energy stocks, pushed Britain's top share index lower by the close on Thursday. However gains in retailer Marks & Spencer, British Airways and technology firm ARM Holdings ensured losses were relatively muted.
The FTSE 100 ended 24.35 points or 0.4 percent lower at 6,019.51. However the blue chip is still up 2 percent after the first three trading sessions of 2011 following a 6.7 percent gain in December.
Energy stocks were the biggest drag on the index as crude, which hit a 27-month high of $92.58 on Tuesday, slipped to below $89 per barrel. BP fell 0.5 percent. Metals were also hit on US jobs data that showed initial weekly jobless claims for unemployment benefit had risen to 409,000 last week, outpacing the consensus forecast for 400,000. .
Miners fell 0.7 percent. "The jobless data was the catalyst (for the fall), it's the first data of the year to come out and investors are thinking it could be setting a tone for the year," said Joe Rundle, head of trading at ETX Capital.
"It could be a reality check, with some investors thinking that the strong gains seen are not justified by the state of the economy."
Investors were closely watching the data for clues about the closely watched US nonfarm payrolls due on Friday. Payrolls likely increased by 175,000 in December, according to a Reuters poll, instead of the 140,000 expected before an independent report on Wednesday showed a record jump in private jobs last month.
Diageo was a significant support for UK large-caps, up 2 percent after the maker of Jonnie Walker and Smirnoff was initiated with a "buy" rating in a note from Citi, which painted a rosy picture for the premium spirits market.
British Airways was top gainer, up 4.4 percent after the airline said its December traffic figures would have been up without disruption caused by heavy snow.
Chip designer ARM Holdings was also stronger, up 2.3 percent on top of sharp gains on Wednesday when Microsoft Corp said it was linking up with ARM to take on Apple Inc in the red-hot tablet and smartphone arena.
Marks & Spencer bucked a weaker retail trend, adding 3.5 percent with analysts expressing optimism about a trading update due out next Tuesday. Analysts said there were few technical factors preventing further sharp gains for the FTSE 100, though many remained sceptical whether the broad trend higher could be maintained.
Michael Hewson, analyst at CMC Markets, said the next significant resistance is at the 6,375/80 May 2008 highs. He said this could be reached if there is a good non-farm payroll number on Friday. "But if you had to twist my arm I would have to say. I think we are overdue a correction soon."