Britain's top share index shed 1.1 percent by midday on Tuesday as commodity issues and banks dropped sharply on news China has raised its banks' reserve requirements, a sign of tighter monetary policy.
Miners led the blue chip retreat as metal prices fell further following the move by China, with the sector already under pressure after disappointing fourth-quarter results overnight from U.S. aluminium firm Alcoa..
Vedanta Resources lost 3.9 percent, also hit by a Deutsche Bank downgrade to "hold" from "buy", while Fresnillo, Eurasian Natural Resources, Kazakhmys, and Rio Tinto shed 3.2-6.2 percent.
By 1157 GMT, the FTSE 100 index was 59.05 points lower at 5,479.02, dropping back after hitting a 16-month intraday peak at 5,600.48 on Monday.
"It looks like the 5,600 level touched on Monday was a bit too far for the blue-chip index and a reality check for the markets has pulled the FTSE back through 5,500 now", said Angus Campbell, head of sales at Capital Spreads.
Energy issues also suffered from the China move which countered the benefits of the strong trade numbers reported by the country on Monday, muddying the demand outlook for crude, which fell below $82 per barrel.
Royal Dutch Shell, BP, BG Group, Cairn Energy, and Tullow Oil fell 0.8 to 2.7 percent.
Banks were knocked further as well, having been hit earlier by reports that U.S. President Obama is considering levying a tax on the sector, according to the New York Times.
Standard Chartered, Lloyds Banking Group, Royal Bank of Scotland, HSBC, and Barclays lost 1.1 to 3.1 percent.
FOOD WANTED
Supermarket issues provided the main underlying support for the FTSE 100 index after Tesco, the world's fourth-biggest retailer, smashed Christmas sales growth forecasts in its main British market, boosted by its loyalty scheme and demand for premium foods. Tesco was up 1.0 percent, while peer WM. Morrison added 0.2 percent, helped again by a Nomura upgrade on Monday.
British retail sales values rose 4.2 percent on a like-for-like basis in December, and 6 percent when new store space was included, in what the British Retail Consortium said on Tuesday was a better-than-expected Christmas.
Aside from food retailers, other selected defensive issues were also in demand as investors' risk appetite faded, led by telecoms, and healthcare firms.
BT Group gained 1.0 percent, medical products firm Smith & Nephew firmed 0.5 percent, and Imperial Tobacco added 0.6 percent.
Life insurers were also stronger, bouncing back after sharp falls on Monday supported by underlying sector consolidation hopes, with Standard Life, RSA Insurance, Aviva, and Prudential up 0.1 to 0.9 percent.
Among individual blue chip gainers, Financial Times publisher Pearson took on 0.7 percent following an upgrade in rating by Morgan Stanley to "overweight".
Overall domestic economic news was mixed on Tuesday.
Britain's goods trade deficit with the rest of the world narrowed more than expected in November, after the country's deficit with non-EU countries fell to its lowest since late 2005, official data showed on Tuesday.
Meanwhile British house prices rose by a seasonally adjusted 1.7 percent on the month in November, leaving them up 0.6 percent on the year, data from the Department for Communities and Local Government showed on Tuesday.
But overnight the Royal Institution of Chartered Surveyors said its monthly house price balance fell in December for the first time since prices hit a low point in February.
