Britain's leading share index slipped early on Wednesday as heavyweight HSBC fell on concerns of capital increase and dividend cut though oil producers boosted by firmer crude lent support.
By 0844 GMT, the FTSE 100 was down 40.98 points, or 0.9 percent, at 4,358.17, on course for extending its losses to a sixth straight session. The UK benchmark is down 1.7 percent so far this month and had fallen more than 31 percent last year, its worst annual drop since its launch in 1984.
HSBC dragged the banking sector lower after Morgan Stanley said Europe's biggest bank may have to raise as much as $30 billion in capital and halve its dividend as earnings were likely to deteriorate more than expected.
HSBC shares were down 6 percent.
"There does seem to be more concern with regard to further fundraising appearing to be sweeping the sector almost globally," said Keith Bowman, an equity strategist at Hargreaves Lansdown.
"We have seen a number of disposals from the likes of Citibank and RBS which have underlined the need to still raise capital."
Also in the sector, Barclays is cutting over 2,100 jobs across its investment banking and investment management units, or about 7 percent of their staff, a person familiar with the matter said on Tuesday. Its stock slipped 5.2 percent.
Royal Bank of Scotland, HBOS and Standard Chartered were also lower.
Meanwhile, the UK government is considering creating a so-called bad bank to absorb toxic assets, reported the Daily Telegraph on Wednesday citing banking sources.
Britain on Wednesday launched a scheme to guarantee billions of pounds of loans to small and medium-sized companies as pressure grows on the government to fight a deepening recession.
Overnight U.S. Citigroup agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management unit, and is expected to make further asset sales to raise capital and to isolate toxic assets from the rest of the bank.
The U.S. retail sales data, due at 1330 GMT, will provide further gauge of the extent of the economic slowdown in the world's largest economy.
Within the financial sector, Man Group sagged 7.3 percent after the world's biggest listed hedge fund firm said that funds under management at end-December were $53.3 billion, down from $67.6 billion at end-September.
OILS SUPPORT
Oil producers were buoyed by higher crude prices, which traded above $39 a barrel as OPEC kept up its talk of production cuts and a cold snap in the United States boosted heating oil demand.
BP, Royal Dutch Shell and Tullow Oil put on 0.1 to 0.6 percent.
Reed Elsevier was among the top gainers, up 3.4 percent after JPMorgan raised its price target on the Anglo-Dutch publisher.
British bus and rail operator FirstGroup sank 8.8 percent after it said its North American bus firm Greyhound had seen a fall in revenues during its third quarter but, overall, the company was coping with the economic downturn.
British Land also fell after going ex-dividend.
Among mid-caps, Punch Taverns slumped 11.7 percent after Britain's biggest pub operator by number of outlets said trading since Nov. 4 had remained challenging with economic outlook deteriorating.
Within the sector, Marston's lost 3.5 percent and Enterprise Inns dropped 5.3 percent.
