The UK's leading share index edged lower in early trade on Thursday as losses in the troubled banking sector offset gains in defensive pharmaceuticals companies.
By 0802 GMT the FTSE 100 was down 0.2 percent or 7.9 points at 5,088.9 points after losing 0.8 percent on Wednesday.
The index has fallen 9.5 percent so far in September and is on track for its biggest monthly decline in six years as fears about the health of the global financial system intensify.
Banking stocks fell as continuing uncertainty about when Congress might approve a $700 billion financial sector bailout weighed on the embattled sector.
In an attempt to convince Americans to support the Wall Street rescue package, President George W. Bush warned on Wednesday that the United States was in the middle of a serious financial crisis that could push the economy into recession.
"The only show in town is the U.S. bailout, and it's see-sawing as to whether it will get through," said Richard Hunter, head of UK equities at Hargreaves Lansdown. "The longer it goes on the more uncertainty there will be… and if there's one thing the market hates it's uncertainty."
Lloyds TSB fell 2.4 percent after Deutsche Bank downgraded it to "sell" from "hold" and cut its price target to 200 pence from 250 pence.
Standard Chartered, Royal Bank of Scotland and HSBC fell between 0.5 and 2.4 percent.
Gloom on the banking sector is spreading to the wider economy, with the credit crunch seen as forcing consumers to draw in their horns.
Iconic high street retailer Marks & Spencer fell 2.4 percent, while Next lost 0.9 percent.
Supermarkets were also on the back foot with Tesco down 0.9 percent and Morrison losing 0.2 percent and Sainsbury down 0.6 percent.
Leading supermarkets and consumer goods businesses are facing the threat of heavy fines after the Office of Fair Trading confirmed it had found evidence of companies sharing price plans, the Financial Times said.
Energy stocks fell even as oil rose above $106 per barrel. Royal Dutch Shell British Gas fell 0.8 percent while BP lost 0.6 percent.
The Times reported that Robert Dudley, current chief executive of TNK-BP may quit the British oil group's board as the hunt for a new boss for the Russian joint venture hots up.
OIL PRICE WEIGHS
The higher oil prices pressured British Airways which fell 1.1 percent.
Thomas Cook slid 7.9 percent after German stores and tourism holding company Arcandor said it may lower its stake in the company.
Pharmaceuticals, seen as defensive stocks and attractive at times of market uncertainty, were the FTSE 100's biggest weighted gainers with AstraZeneca up 1 percent and GlaxoSmithKline up 0.8 percent.
In the FTSE 250 the Daily Mail & General Trust fell 8.4 percent after it said it sees full-year adjusted results at the low end of market expectations as a deteriorating UK economy hits its ad sales and property information business. The world's largest hotelier Intercontinental Hotels gained 0.5 percent after chief executive Andrew Cosslett told Reuters in an interview it has not yet seen an impact on its development pipeline from the credit crisis.
