Blue chip shares fell in afternoon trading dragged down by banks, ahead of the key Italian referendum vote at the weekend. The country is expected to vote against a series of constitutional reforms on Sunday, and traders worry this will halt the rescue of eight banks known to be in various stages of distress.
The fear is this lack of investor confidence will spread throughout the European banking system.
The FTSE 100 index fell 42.7 points to 6710.3, with all top flight banks among the fallers. The FTSE 250 was 91.8 points lower at 17405.5.
Barclays and Royal Bank of Scotland were the worst performers among bank stocks, both down around 3%, at 7.5p to 211.6p and 5.8p to 194p respectively.
Mihir Kapadia founder of Sun Global Investments said: "There is a legitimate concern about the Italian banking sector which needs reform as in the current scenario, many banks have written off large parts of their lending books and are clearly in need of recapitalisation and restructuring.
"We would hope the referendum brings about a sense of confidence into Italy and thus across Europe, otherwise the EU will get its next big crisis."
In afternoon trading the biggest risers in the FTSE 100 Index were Land Securities (+19.5p to 958.5p), British Land (+11.5p to 591p), Royal Mail (+8.3p to 463.5p), Imperial Brands (+52.5p to 3397.5p) and SSE (+20p to 1474p).
The biggest fallers in the FTSE 100 Index were Rolls-Royce (-26.5p to 655.5p), Antofagasta (-25p to 680.5p), Barclays (-7.5p to 211.6p), BHP Billiton (-42.5p to 1296.5p) and Royal Bank of Scotland (-5.8p to 194p).
In afternoon trading the biggest risers in the FTSE 250 Index were Berkeley Group (+211p to 2756p), Hochschild Mining (+7.6p to 221p), DFS Furniture (+6p to 221.4p), HICL Infrastructure (+3.5p to 163.1p) and AO World (+3.6p to 174.7p).
The biggest fallers in the FTSE 250 Index were Laird (-10.1p to 141.4p), Evraz (-16.2p to 228.2p), Euromoney (-75p to 1116p), Aggreko (-34.5p to 811p) and Paysafe Group (-14p to 360.6p).