Britain's leading share index fell 1 percent early on Thursday as renewed credit jitters weighed heavily on banks, though firmer metal prices lifted mining stocks.
By 0740 GMT, the FTSE 100 was down 54.5 points at 5,317.3, after rising 1 percent to snap a three-session losing run on Wednesday.
"It's continued worries from the U.S. that are feeding in over here," said Howard Wheeldon, senior strategist at BGC Partners.
"There is no reason for any air of confidence to appear over the next 24 hours."
Banks shaved more than 22 points off the index on renewed credit jitters. Barclays, Royal Bank of Scotland, HSBC, HBOS, Lloyds TSB and Standard Chartered lost between 1.3 and 3.5 percent.
Fannie Mae and Freddie Mac shares plunged to their lowest levels in almost 20 years on Wednesday, while the mortgage companies' bonds rallied on the belief that an increasingly likely goverNment bailout would wipe out shareholders but secure their massive debt.
The Financial Times reported that U.S. investment bank Lehman Brothers had held talks on a sale of up to half its shares with China's CITIC Securities as well as with state-owned Korea Development Bank, but both investors walked away saying the price was too high.
CITIC Securities, however, said it had held not formal talks about buying a stake in Lehman.
Mid-cap housebuilder Persimmon surged 2.5 percent on short covering after its first-half results were not as bad as some had expected, traders said.
The company reported a 64 percent fall in first-half pretax profit and cut its dividend to 5 pence per share from 18.5 pence, due to very difficult market conditions.
Insulation and roofing materials group SIG sank 4 percent after it met forecasts with a 10.2 percent rise in underlying first-half profit and said it was confident of further progress but prepared for a slowdown.
Mining shares rose on firmer metal prices and after Eurasian Natural Resources posted a 160 percent jump in half-year earnings per share on strong metal prices and higher output.
ENRC shares were up 3.7 percent, while BHP Billiton, Xstrata , Rio Tinto, Anglo American and Antofagasta rose between 0.5 and 1.8 percent.
Mid-cap Imperial Energy climbed 4.3 percent after India's Business Standard said a government panel has approved India's state-run Oil and Natural Gas Corp's $3 billion bid to buy the Russia-focused oil firm.
However, rising commodity prices reignited concerns over inflation and consumer spending.
Investors will keep an eye on UK retail sales for July, due at 0830 GMT, for a further gauge of the health of the British economy.
In the retail sector, Marks & Spencer dropped 2.2 percent, Next shed 2.8 percent, Kingfisher lost 2.2 percent and Sainsbury eased 1.9 percent.
Old Mutual fell 2.7 percent. Fortis said it would sell the 49 percent stake owned by ABN AMRO in Chinese asset management joint venture Teda Fund Management to the UK-listed insurer for 165 million euros.
