Britain's top shares fell sharply on Friday as investors turned to safe havens such as the dollar and gold and out of banks, miners and commodity-linked stocks, fearing euro-zone debt problems will curb growth.
By 1035 GMT the FTSE 100 was down 89.76 points, or 1.7 percent, at 5,343.97, having risen 0.9 percent to 5,433.73 on Thursday to hit its highest closing level since April 30.
"Investors are having to recognise that as economies start to get to grips with the important fiscal cuts needed to reign in deficits, consumers will have less cash to spend and this could impact on company earnings and economic growth," Joshua Raymond, market strategist at City Index said.
Banks fell on concern over exposure to euro-zone debt and speculation about measures the new UK coalition government may impose on banks as it tackles Britain's bulging deficit.
HSBC, Standard Chartered, Lloyds Banking Group, Barclays and Royal Bank of Scotland dropped 1.4 to 4 percent.
Sector sentiment was also damaged as U.S. prosecutors are conducting a broad criminal investigation of six major Wall Street banks, including JPMorgan Chase & Co and Citigroup Inc, to determine if they misled investors.
Overnight, downbeat comments on the economy from tech company Cisco Systems Inc and retail chain Kohl's Corp cast doubt on the strength of the U.S. recovery.
Investors will look stateside later in the session, where a batch of data due for release will give a clearer indication of how the United States's recovery is faring.
April U.S. retail sales numbers will be released at 1230 GMT, April U.S. industrial output figures are due at 1315 GMT, the first reading for May's Thomson Reuters/University of Michigan consumer sentiment index is out at 1355 GMT, and U.S. business inventories for March will be released at 1400 GMT.
U.S. futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 all point to a weaker start on Wall Street on Friday.
COMMODITY RETREAT
Commodity-linked stocks slid as crude dropped to near $73 a barrel and metals prices fell across the board between 2.3 and 3.2 percent, as euro zone growth prospects smeared the outlook for demand.
Among energy issues, BP, Royal Dutch Shell and BG Group were down 1.6-3 percent.
Miners Xstrata, Kazakhmys, Antofagasta and Rio Tinto fell 3.7 to 6 percent.
The sector is around 17 percent off 2010 highs hit in late March amid concerns over potential China monetary tightening and euro zone debt issues.
Proof of investor jitters over euro zone debt contagion came with gold hovering near its all-time high and the greenback remaining strong against a basket of currencies, both traditional safe havens.
Portugal and Spain took steps to trim their budget deficits on Thursday, offering reassurance the euro zone was addressing deep-rooted fiscal problems.
Yet the head of Deutsche Bank in a TV interview broadcast after Thursday's market close cast doubt on Greece's ability to repay its debts.
On the upside, Wolseley was the standout blue-chip gainer, up 6.6 percent after the building materials distributor said it anticipates beating market expectations for the full year, prompting Seymour Pierce to raise its estimates.
