Falls among blue chip banks have pulled the FTSE 100 Index into negative territory after warnings of a possible ratings downgrade for debt-laden Spain.
Barclays led the sector lower – down 4% – on fears over its exposure to Spain following a move by Moody’s to put the country’s credit rating under review.
Despite a late session boost from Wall Street after positive US manufacturing data, the Footsie still closed on Wednesday in the red, off nine points to 5882.2.
The Dow Jones was up 0.3% after the Federal Reserve announced factory output rose 0.3% in November, its fifth successive monthly rise.
This buoyed the FTSE 100 briefly, but it failed to maintain gains – ending the rally that on Tuesday saw the top tier hit its highest close for two-and-a-half years.
Sentiment was not helped by less cheery economic news as figures revealed UK unemployment climbed to 2.5 million in the quarter to October.
This sent the pound down sharply, 1% lower at 1.56 US dollars and 0.6% down at 1.17 euro.
Barclays was down 10p to 262p as investors fretted over its exposure to Spain’s economy after the gloomy Moody’s report.
The credit ratings agency may downgrade Spain’s debt because of the country’s high financing needs in 2011 and its shaky banking sector, fuelling worries over the sovereign debt exposure of UK banks, with Barclays seen as being one of the most exposed. Other banks also suffered as HSBC dropped 10.6p to 661.1p, part-nationalised Royal Bank of Scotland lost 0.6p to 40.8p and Lloyds Banking Group declined 0.8p to 68.5p.
The biggest rise in the top flight came from Lakeside shopping centre owner Capital, which climbed 5% or 19.3p to 415.6p after US firm Simon Property Group wrote to the company outlining its plans for a £2.9 billion takeover.