Britain's FTSE 100 share index fell on Tuesday, led down by energy shares as BP dropped again on fresh Gulf of Mexico oil slick worries and banks which were hit by euro zone debt concerns and the threat of punitive taxes.
By the close the FTSE 100 was off 40.91 points, or 0.8 percent at 5,028.15 after a choppy session, having recovered from an intraday low of 4,984.66.
"It has been a bit miserable again today, with the bad news over the past few days for BP, and the banks holding sway," said David Morrison, market strategist at GFT Global.
"With the FTSE testing the psychologically and technically significant level at 5,000 … it's all a little bit worrying.
Energy shares were the biggest blue-chip fallers, led lower by BP which dropped 5 percent after U.S. president Barack Obama said that he wanted to know "whose ass to kick" over the Gulf of Mexico oil spill, the worst enviromental disaster the U.S. has faced.
Royal Dutch Shell, Cairn Energy, and Tullow Oil shed 0.5 to 1.2 percent, failing to benefit from a firmer crude price, although BG Group added 0.5 percent after a closing auction rally.
UK-focused banks were poor performers on twin concerns over the euro zone debt situation, and the threat of possible levies on lenders.
European finance ministers sought agreement on Tuesday on how to make banks pay for financial crises.
Meanwhile, in a direct warning to British investors, ratings agency Fitch said the UK faced a formidable fiscal challenge, sending up the cost of protecting British government debt against default.
Lloyds Banking Group, Barclays, Royal Bank of Scotland, and Standard Chartered fell 1.9 to 4.1 percent. But global bank HSBC added 0.6 percent.
TESCO BOSS CHECKS OUT
Retailer Tesco shed 2.4 percent as investors reacted with uncertainty after Terry Leahy, the retailer's long-standing boss, announced he would retire in March 2011.
Tesco said Leahy will be succeeded by lifelong company man and head of international business Philip Clarke.
In the United States the Dow Jones industrial average index was 0.3 percent higher by London's close after a see-saw early session, helped by positive comments on the U.S. economy from Federal Reserve chairman Ben Bernanke.
On the upside among UK shares, miners rose with a firming in metals prices following recent sharp falls. Fresnillo, Randgold Resources, BHP Biliton, Anglo American, and Antofagasta added 0.8 to 4.6 percent.
Temporary power equipment supplier Aggreko was also a top FTSE 100 gainer, up 3.9 percent, after it said full-year performance should be significantly better than expected as it benefited from contract wins including for the World Cup soccer tournament.
Aggreko also benefited from hopes of a possible bid war at mid-cap peer Chloride, ahead 19.4 percent as investors bet that U.S. firm Emerson could counter an agreed takeover offer for the British firm from ABB.
Takeover interest also saw security firm G4S climb 1.6 percent. Newspaper The Daily Mail's Market Report section on Tuesday reported revived rumours of a private equity consortium led by Kohlberg Kravis Roberts lining up a 5.3 billion cash offer worth 375 pence a share for the security provider.
