Upbeat economic data from the States wasn't enough to give markets a boost on Tuesday as a political impasse in Italy dampened the demand for cyclical stocks, such as banks.
The centre-left party led by Pier Luigi Bersani appears to have won the lower house by a narrow margin though the there was an inconclusive vote for the senate. Both Silvio Berslusconi's centre-right party and Beppe Grillo's Five-Star Movement gained a lot of support, with the latter surprising after pulling in a quarter of the vote.
With anti-austerity parties faring so well in the elections, there are fears that the government may struggle to pass through the reforms aimed at tackling its budget. With the country now seen by many as "ungovernable", a second election down the line is now looking likely.
Italian 10-year bond yields rocketed by 41 basis points to 4.89%, climbing the most in 14 months.
The FTSE 100 dropped 1.34% to 6,270 today in the aftermath with analysts at Charles Stanley saying that there could be more falls to come.
They broker said: "The low end of the FTSE's recent range is marked by the trading low that was reached on the 7th of this month, at 6,216 or so, and since a break below that level would also involve a breach of the uptrend that is going to be the level to watch in the near term. If it gives way we should expect to see a rapid retreat back to around 6,100."
German policy-makers were quick to react to the elections: Michael Grosse-Bromer, parliament leader of Angela Merkel's Christian-Democratic Union (CDU) party, said that it is important for Italy to have a functioning government that moves forward with Mario Monti's reforms; meanwhile, Economic Minister Philipp Rosler has also discussed the elections, saying that there are no possible alternatives to the reforms that are being implemented.
Stocks began to trim losses mid-afternoon, albeit only briefly, when Wall Street benchmarks opened in positive territory on the back of some decent housing data Stateside. The annual gain in US house prices in December showed the biggest rise in seven years, while new home sales reached a post-2008 high in January. What's more, a key reading of US consumer confidence increased to a three-month high.
FTSE 100: Banks bear the brunt of the sell-off
UK lenders Barclays, Lloyds and RBS were firmly out of favour with the latter weighed down by comments from Nomura ahead of its full-year results on Thursday. The broker said that the group "still faces material uncertainties with respect to deleveraging, asset quality and the future shape of operations, and remain cautiously positioned on the name."
Costa coffee and restaurant group Whitbread was also lower despite a fourth-quarter update saying that it is on track to hit full-year forecasts. The company did admit that like-for-like sales growth was "slightly surprised" by the poor weather conditions in January.
Chemicals group Croda was also a bright spot after saying that it has made an encouraging start to the new year. The company said that profit before tax rose 6.6% in 2012 on sales which increased 2.3%.
CRH, the building materials firm, edged lower after announcing that its CEO Myles Lee is to retire at the end of the year after five years running the show. The news came as the company reported lower-than-expected sales for 2012.
GKN, which reported record annual profits this morning, saw shares
push into positive territory. The engineering giant posted a 19% increase in 2012 profit before tax (PBT) and a better-than-forecast 13% rise in revenue.
FTSE 250: St Modwen shares fall on placing news
Regeneration specialist St Modwen tanked after proposing a placing to help fund its share in the development of the New Covent Garden Market in London. St Modwen intends to raise additional equity capital through a placing of up to 20m new ordinary shares of 10p each, representing around 9.99% of the company's existing issued share capital.
Housebuilder Redrow saw its shares fall after it warned the backdrop "remains challenging".
Meanwhile, Chemicals company Elementis was leading the risers after reporting a 12% increase in earnings per share to 20.7p, the highest in the company's history.
FTSE 100 - Risers
GKN (GKN) 261.30p +3.57%
Randgold Resources Ltd. (RRS) 5,615.00p +2.56%
Croda International (CRDA) 2,584.00p +1.10%
CRH (CRH) 1,435.00p +0.99%
Fresnillo (FRES) 1,515.00p +0.80%
British Sky Broadcasting Group (BSY) 832.50p +0.79%
Rexam (REX) 508.50p +0.69%
Associated British Foods (ABF) 1,825.00p +0.55%
Xstrata (XTA) 1,144.00p +0.44%
ITV (ITV) 120.20p +0.33%
FTSE 100 - Fallers
Barclays (BARC) 297.00p -4.70%
Royal Bank of Scotland Group (RBS) 339.50p -4.31%
Vedanta Resources (VED) 1,173.00p -3.77%
Whitbread (WTB) 2,469.00p -3.67%
Wood Group (John) (WG.) 771.50p -3.26%
Lloyds Banking Group (LLOY) 53.14p -3.26%
Schroders (SDR) 1,980.00p -3.13%
Tullow Oil (TLW) 1,191.00p -3.09%
Aviva (AV.) 348.70p -2.84%
Eurasian Natural Resources Corp. (ENRC) 356.20p -2.68%
FTSE 250 - Risers
Elementis (ELM) 241.70p +6.10%
Centamin (DI) (CEY) 55.30p +2.60%
Betfair Group (BET) 702.50p +1.81%
Devro (DVO) 360.70p +1.61%
Hochschild Mining (HOC) 380.00p +1.33%
Ultra Electronics Holdings (ULE) 1,675.00p +1.33%
Interserve (IRV) 479.00p +1.16%
Enterprise Inns (ETI) 105.00p +1.06%
Bank of Georgia Holdings (BGEO) 1,375.00p +1.03%
BH Macro Ltd. GBP
Shares (BHMG) 2,005.00p +1.01%
FTSE 250 - Fallers
St. Modwen Properties (SMP) 248.60p -10.51%
Sports Direct International (SPD) 409.00p -4.99%
Kenmare Resources (KMR) 35.00p -4.63%
National Express Group (NEX) 196.60p -4.61%
Man Group (EMG) 101.90p -4.32%
Henderson Group (HGG) 159.80p -4.02%
Chemring Group (CHG) 280.30p -4.01%
Provident Financial (PFG) 1,468.00p -3.67%
Redrow (RDW) 188.90p -3.52%
Supergroup (SGP) 643.00p -3.45%