Britain's top shares fell early on Wednesday, with banks and commodity-linked stocks leading a broad-based retreat after measures by the U.S. Federal Reserve to bolster its economy failed to provide much reassurance.
By 0745 GMT, the FTSE 100 index was down 63.23 points, or 1.2% at 5,313.18, having shed 0.6% to 5,376.41 on Tuesday.
London's blue chips tracked overnight losses on Wall Street and in Asia after the Fed's Open Market Committee said it would use proceeds from maturing mortgage bonds to buy longer-term government debt to keep borrowing costs low.
The move, a stark warning that the recovery of the world's largest economy was losing pace, failed to convince investors the action would swiftly resolve a weak employment market or boost demand significantly.
"We were expecting major quantitative easing (QE) and what we got was QE light," said James Hughes, market analyst at CMC Markets.
Energy and mining companies were the worst-performing sectors on the FTSE 100, falling along with crude and metal prices respectively as the outlook for demand darkened.
Intergrated oils BP, Royal Dutch Shell and BG Group shed 0.6-1.5%.
An approaching storm in the Gulf of Mexico will delay BP's work on a relief well by two to three days, a U.S. official said on Tuesday. The move is the final step in permanently killing the source of the world's worst offshore oil spill.
Miners Xstrata, down 2.3%, and Rio Tinto, off 2.2%, were the top fallers in the sector.
Barclays, BT Group, Rio Tinto RSA Insurance, Schroders, Standard Chartered, and Unilever all went ex-dividend, knocking a total of 6.10 points off the index.
BANKS RETREAT
Banks also fell as investors awaited the Bank of England's quarterly inflation report at 0930 GMT, with Lloyds Banking Group down 1.7% and Barclays 4.1% lower, also as it traded without dividend attractions.
The BoE was expected to suggest more subdued growth over the next two years than in its May report, due to spending cuts announced by the new government in its June budget.
The inflation forecasts, however, could be significantly higher to take account of a rise in value added tax from 2011 and a recent surge in wheat prices.
"We are expecting the Bank of England to move their expectations for growth," said CMC's Hughes, although he does not believe the bank will boost its own QE programme just yet.
Casting further doubt over the recovery in Britain, consumer morale in Tuesday fell to its lowest since May 2009 as households took a bleaker view of the outlook following June's austere budget, building society Nationwide said.
