China's stock market recorded its biggest fall in a year and a half after the Chinese Government announced new steps to cool the housing market, dampening sentiment in London where the FTSE-100 index closed 32.97 points lower at 6345.53.
On Wall Street, the Dow Jones industrial average was also lower after Barack Obama signed off billions of dollars of budget cuts drawn up two years ago, which he has warned will damage US prospects.
There was more gloom from the UK economy after figures showed another fall in construction activity and no immediate sign banks and building societies are lending more under the Bank of England's Funding for Lending scheme.
Expectations that the Bank will announce more quantitative easing this week has weighed on sterling recently, but the pound pared back some of its losses and was up against the US dollar and the euro at 1.51 and 1.16 respectively.
As well as the Footsie, the German DAX was also lower as eurozone leaders gathered to discuss a Cypriot bailout.
In the top-flight index, shares in HSBC fell 2% after it reported a 6% fall in pre-tax profits to £13.7 billion last year.
The decline, which was driven by movements in its own debt, comes after the bank agreed a £1.2bn settlement with US authorities following a money-laundering probe.
Analysts had been expecting an improvement in profits to around £15.6bn, but chief executive Stuart Gulliver pointed out there was also an 18% rise in underlying profits to £10.9bn.
The shares were down 18.1p to 710p, while Lloyds Banking Group fell 2p to 51.3p and Royal Bank of Scotland slipped 7.1p to 306.9p.
Department store Debenhams also suffered in the FTSE-250 index, falling 15%, after sales were hit by the January snow. It lowered its first-half profit expectations to £120 million.
The shares slid 13.9p to 80.7p while the update caused alarm among other retail shares, with Next down 106p to 4141p, retail bellwether Marks & Spencer off 6.7p to 362.8p and Argos owner Home Retail Group 4.6p lower at 121.7p in the FTSE-250.
The biggest Footsie risers were Capita up 25.5p to 884p, GKN ahead 6.5p to 275.9p, Admiral Group 29p higher at 1276p and Petrofac up 31p to 1466p.
The biggest fallers were Kazakhmys down 35p to 555p, Lloyds Banking Group off 1.95p to 51.3p, Rio Tinto 126p lower at 3316p and Evraz down 7.5p to 254p.
