Britain's top share index retreated in early afternoon trade on Wednesday after a downbeat UK budget, with insurers knocked by pension relief curbs, while banks saw gains eroded after weak Morgan Stanley results.
At 1258 GMT, the FTSE 100 was 21.44 points, or 0.5 percent lower at 3,966.02 points, having been in slightly positive territory ahead of the budget.
"The Chancellor is being more cautious than he has been on his estimates, highlighting what a perilous state the country's finances are in and what a desperate state the UK economy is in," said Henk Potts, strategist at Barclays Wealth.
Insurers looked to be among the biggest losers from the budget, with the sector reversing an earlier recovery after the chancellor confirmed plans to curb pension relief.
Prudential, Friends Provident, Old Mutual, Aviva, and Legal & General shed between 5.4 and 2.3 percent.
Fund manager Schroders suffered as well, down 3.8 percent, with hedge fund manager Man Group losing 3.8 percent as equity growth is likely to be constrained by the chancellor's move on pension relief and income tax. Banks, which had added the most points to the index ahead of the budget, came off highs, knocked as well by disappointing quarterly results from Morgan Stanley.
The U.S. bank posted its second straight quarterly loss on Wednesday, and slashed its dividend, as real estate investment losses and a charge from the improving value of it own debt wiped out gains in its trading businesses.
HSBC fell 0.7 percent, while Standard Chartered, Royal Bank of Scotland, Barclays and Lloyds Banking Group saw gains reduced to between 0.5 to 2.0 percent.
Banks saw stronger support earlier after U.S. Treasury Secretary Timothy Geithner indicated on Tuesday that most banks have sufficient reserves to protect against possible losses.
GLAXO DEPRESSED
Pharmacutical stocks were the biggest blue chip fallers knocked by first-quarter results from GlaxoSmithKline which fell short of expectations reflecting the impact of patent losses on serveral drugs, and research write-offs.
Glaxo shares shed 2 percent, while AstraZeneca lost 0.8 percent, and Shire fell 1.2 percent.
Weak commodity stocks also weighed on the market with metal and oil prices lower amid demand concerns, enhanced by the gloomy economic forecasts in the budget.
Platinum miner Lonmin was the top FTSE 100 faller, down 6.9 percent, while Xstrata, BHP Biliton, and Anglo American lost between 1.8 and 5.4 percent.
Among the oils majors, BP, BG Group and Cairn Energy shed between 0.1 and 1.4 percent.
Jobless data released on Wednesday underlined the extent to which the economy is suffering, with the ILO unemployment rate rising to 6.7 percent from 6.5 percent.
Data which showed a 52 percent annual drop in mortgage lending and government borrowing at a record high also piled on the gloom.
Retail stocks, however, shrugged off the glum data supported by forecast-beating updates from mid caps Game Group, up 12.7 percent, and Carphone Warehouse ahead 3.9 percent.
Comment from Citi also helped, with the broker raising price targets across the retail sector and upgrading blue chip Next to "buy" from "hold".
Next was the top FTSE 100 gainer, up 6.1 percent, while Marks & Spencer, Kingfisher and Home Retail Group gained between 0.9 and 5 percent.
Mid cap broadcaster ITV was a strong performer, up 10.4 percent as traders cited market talk of bid interest from Italy's Mediaset.. Both companies declined to comment on the rumour.
