Hawkish comments from the Federal Reserve weighed heavily on markets on Thursday with cyclical stocks bearing the brunt of the sell-off as traders looked to book some profits after a strong run in recent months.
The FTSE 100 was boosted on Wednesday to highs not seen since January 2008 after minutes from this month's Monetary Policy Committee meeting showed that, while still outvoted, more members - including Bank Governor Sir Mervyn King - called for additional stimulus for the UK economy.
However, minutes from the Federal Open Market Committee were dominating the headlines today after they showed a more hawkish tone among policy-makers, suggesting that the Fed would soon begin to scale back its quantitative easing programme soon.
Cyclical sectors such as mining, banking and construction were among the worst performers of the day, as risk appetite on equity markets dampened.
"The markets had clearly priced in ultra-loose monetary policy from the Fed until the end of the year, despite recent grumblings from certain board members. These grumblings turned to real concerns about costs and risk associated to the bond buying at this month's meeting, with more members clearly being swayed by the argument against further buying, or looking for an alternative," said market analyst Craig Erlam from Alpari.
"One thing is now clear, these purchases are likely to be scaled back sooner than we thought and it could come as early as March," he said.
Plenty of economic data to digest
A barrage of disappointing economic data was also weighing on the markets today.
Eurozone purchasing managers' indices (PMIs) released this morning showed that the downturn in the region steepened in February. The Eurozone composite PMI index fell to 47.3 points from January's reading of 48.6, while the consensus had expected to see an improvement to 49.0 points.
US economic data also disappointed today, pressuring stocks lower on Wall Street. Both jobless claims and CPI inflation came in above forecasts, while the Philly Fed manufacturing index missed estimates.
Domestic data lifted the mood slightly though as UK public-sector borrowing excluding financial interventions showed a better-than-expected surplus of £11.4bn in January, up £5bn from a year earlier.
FTSE 100: BAE a rare bright spot after initiating buyback
UK defence giant BAE Systems may have posted a fall in sales and earnings in 2012, but shares
gained strongly this morning after the company initiated a share buy-back worth £1.0bn over the next three years.
British supermarket Sainsbury has said no horsemeat was found in its beef products following 250 tests in line with the Food Standards Agency (FSA), prompting shares to rise.
Aviva was also higher after Exane BNP moved its target price from 369p to 414p and upgraded the stock to outperform.
Miners were under the weather risk appetite was scaled back after the weak economic data and Fed minutes. EVRAZ, Vedanta and BHP Billiton were among the worst performers, with the latter hit by a downgrade from Citi to 'neutral'.
Oil producer Tullow fell after saying that it was forced to plug and abandon a well in Uganda after it couldn't find hydrocarbons.
B&Q owner Kingfisher was lower after reporting a decline in like-for-like sales in the fourth quarter as it battled against weak consumer confidence, unfavourable foreign exchange
and poor weather in the UK.
FTSE 250: CSR impresses with full-year numbers
Shares of wireless technology firm CSR stormed ahead after it posted record full-year revenue and underlying gross margin, boosted its dividend payment and said it expects good growth in core revenues for 2013.
Bumi shares rose as investors awaited the outcome of a much anticipated shareholder meeting being held today. The company told Sharecast that it is unlikely to release a statement until 18:00 today.
Miners were leading the falls on the second-tier index, with Ferrexpo, New World Resources and Centamin registering heavy losses. New World reported this morning that revenue fell 20% in 2012 while operating profit plunged 80%.
High Street betting shop Ladbrokes was lower despite registering record revenues in UK retail in 2012 and saying that 2013 has had a "promising" start. Analyst Simon Davies from Canaccord Genuity said that evidence of a recovery online "will be required to spark a material further re-rating".
Transport group Go-Ahead fell after saying that while full-year profits will be in line with forecasts, second-half trading at its Rail division would remain "challenging".
FTSE 100 - Risers
BAE Systems (BA.) 345.90p +4.12%
Pearson (PSON) 1,222.00p +1.41%
RSA Insurance Group (RSA) 118.00p +0.85%
Sainsbury (J) (SBRY) 337.80p +0.81%
Rexam (REX) 505.50p +0.70%
Aviva (AV.) 355.90p +0.54%
Legal & General Group (LGEN) 157.40p +0.51%
FTSE 100 - Fallers
Evraz (EVR) 266.70p -4.99%
CRH (CRH) 1,336.00p -4.84%
Barclays (BARC) 306.45p -4.22%
Vedanta Resources (VED) 1,206.00p -4.06%
BHP Billiton (BLT) 2,097.00p -3.96%
Aberdeen Asset Management (ADN) 425.30p -3.76%
Rio Tinto (RIO) 3,518.50p -3.51%
Kazakhmys (KAZ) 674.00p -3.44%
ARM Holdings (ARM) 919.50p -3.36%
WPP (WPP) 1,033.00p -3.19%
FTSE 250 - Risers
CSR (CSR) 432.70p +12.27%
Sports Direct International (SPD) 440.00p +5.77%
Bumi (BUMI) 391.30p +3.16%
Hiscox Ltd. (HSX) 498.20p +2.11%
Alent (ALNT) 374.90p +2.07%
Renishaw (RSW) 1,843.00p +1.43%
Direct Line Insurance Group (DLG) 208.00p +0.97%
Kier Group (KIE) 1,370.00p +0.96%
Britvic (BVIC) 418.10p +0.75%
Paragon Group Of Companies (PAG) 312.30p +0.52%
FTSE 250 - Fallers
Ferrexpo (FXPO) 251.40p -9.24%
New World Resources A Shares (NWR) 275.60p -6.89%
Afren (AFR) 145.00p -5.54%
Kentz Corporation Ltd. (KENZ) 383.10p -4.70%
Moneysupermarket.com Group (MONY) 200.00p -4.53%
FirstGroup (FGP) 180.20p -4.15%
Henderson Group (HGG) 162.10p -4.08%
Savills (SVS) 520.00p -3.79%
Fidelity China Special Situations (FCSS) 91.85p -3.72%
Hochschild Mining (HOC) 386.30p -3.57%