After a brief spell in positive territory at lunchtime, UK stocks sunk back into the red by the close of trade on Tuesday as leaders in Cyprus gathered to vote on the deposit tax, a controversial measure deemed necessary to save the country from default.
Traders were also nervous ahead of tomorrow's Budget Statement from UK Chancellor George Osborne, in which he is expected to announce further spending cuts worth £2.5bn.
Meanwhile, markets were looking ahead to the two-day Federal Open Market Committee (FOMC) meeting in Washington which kicks off this evening.
All eyes on Cypriot parliament
The proposed levy, widely criticised by the public and politicians abroad, is part of a plan to raise €5.8bn so that Cyprus can secure its €10bn bailout from the Troika. It is thought to be key to preventing Cyprus from defaulting on its debts, which would inevitably lead to its exit from the Eurozone.
Rumours surrounding the vote, which kicked off in parliament just before markets closed today, sparked a volatile finish for London's FTSE 100 as traders digested market chatter: there were unconfirmed rumours that Cyprus's finance minister had resigned; while Prime Minister Nicos Anastasiadesis is thought to be preparing a 'Plan B' in case the vote fails.
Meanwhile, according to the British Ministry of Defence, an RAF plane has flown €1.0m over to Cyprus to give military personnel emergency loans in case ATMs or debit cards stop working.
Current Cypriot plan won't achieve target
A draft proposal on the one-off deposit tax would fail to meet the €5.75bn revenue target agreed with international lenders, according to Cypriot central bank governor Panicos Demetriades.
With leaders desperately scrambling to come up with plans to ease the impact of a potential levy on low-income families, Demetriades has warned that the shortfall in revenues from the smaller savings would not be covered by taxes on larger deposits.
While Demetriades told the Cypriot parliament's finance committee that the current bill wouldn't achieve the Troika target, he also warned that "if the draft bill passes, we would see deposit outflows of 10%, or maybe more, in the first few days".
FTSE 100: Miners tank; Sainsbury gains after update
Mining stocks were dominating the fallers list on the FTSE 100 this morning as risk appetite waned, with Rio Tinto and BHP Billiton both hit by a downgrade by Goldman. Citi was also pressuring stocks lower after cutting its estimates for iron ore prices on concerns of over-supply.
Precious metals group Fresnillo dropped after Deutsche Bank cut its rating from 'hold' to 'sell', saying that the current share price is pricing in a near-perfect delivery of their medium-term growth prospects and a recovery in metals prices.
Supermarket giant Sainsbury was edging higher after beating forecasts with its fourth-quarter sales as the firm saw customer transactions grow to a record 22.9m per week.
Chip designer ARM Holdings was in the red after its CEO Warren East called it quits after nearly 12 years as frontman. He will be replaced by ARM's current President Simon Segars.
Defence giant BAE Systems was in the top spot after having released its annual report, in which it revealed plans to freeze the salary of its Chief Executive and two other senior management members after the group's earnings per share came in below expectations.
Lloyds was lower on reports that it is considering the sale of Irish real estate loans in an effort to pull itself out of Europe's property slump. Sector peer RBS was also down despite Investec upgrading the stock from 'sell' to 'hold'.
FTSE 250: Bumi drops after delaying results
Coal miner Bumi, which has made headlines on numerous occasions over the past few months, plunged in afternoon trade after delaying the publication of its full-year results.
Mining peer Kazakhmys, which was recently demoted from the top-tier index, was hit after Canaccord Genuity slashed its target price by 30% after increasing its cost forecasts and cutting estimates of by-product output rates.
Fibre and foam products provider Filtrona rose after it was announced its subsidiary, FIL International, has signed an agreement for the acquisition of Contego Healthcare.
FTSE 100 - Risers
BAE Systems (BA.) 393.40p +2.47%
Severn Trent (SVT) 1,673.00p +1.70%
Sainsbury (J) (SBRY) 371.40p +1.70%
United Utilities Group (UU.) 695.50p +1.68%
National Grid (NG.) 746.50p +1.56%
GlaxoSmithKline (GSK) 1,513.50p +1.51%
Diageo (DGE) 2,042.50p +1.47%
SSE (SSE) 1,480.00p +1.44%
Vodafone Group (VOD) 187.60p +1.43%
Centrica (CNA) 355.00p +1.43%
FTSE 100 - Fallers
Rio Tinto (RIO) 3,107.00p -5.19%
Evraz (EVR) 233.40p -4.54%
Weir Group (WEIR) 2,325.00p -4.36%
BHP Billiton (BLT) 1,981.50p -3.53%
Fresnillo (FRES) 1,406.00p -3.43%
Standard Life (SL.) 367.70p -3.24%
Anglo American (AAL) 1,820.00p -2.86%
Eurasian Natural Resources Corp. (ENRC) 312.70p -2.86%
Barclays (BARC) 297.50p -2.76%
Petrofac Ltd. (PFC) 1,521.00p -2.69%
FTSE 250 - Risers
Filtrona PLC (FLTR) 690.50p +4.23%
Hansteen Holdings (HSTN) 88.00p +3.71%
Senior (SNR) 251.80p +3.66%
Carpetright (CPR) 679.50p +3.50%
Computacenter (CCC) 543.50p +2.94%
Cobham (COB) 247.30p +2.91%
Berkeley Group Holdings (The) (BKG) 2,093.00p +2.80%
Brown (N.) Group (BWNG) 429.30p +2.73%
Petropavlovsk (POG) 246.70p +2.28%
William Hill (WMH) 385.70p +2.07%
FTSE 250 - Fallers
Ferrexpo (FXPO) 181.60p -8.14%
Bumi (BUMI) 308.10p -7.62%
Domino Printing Sciences (DNO) 655.00p -6.43%
Kazakhmys (KAZ) 473.90p -6.25%
Ocado Group (OCDO) 153.30p -5.95%
Thomas Cook Group (TCG) 105.40p -5.47%
Essar Energy (ESSR) 145.70p -4.96%
Balfour Beatty (BBY) 259.50p -4.42%
BlackRock World Mining Trust (BRWM) 535.50p -3.95%
Cairn Energy (CNE) 278.40p -3.73%