Banking stocks were hit by jitters despite the UK's major players passing a test to see if they could withstand another financial crisis.
Shares in Lloyds, Royal Bank of Scotland, Barclays and HSBC were all lower on fears that a further examination at the hands of the Bank of England could prove more exacting and force them to beef up their balance sheets.
The wider FTSE 100 Index closed 25.3 points lower at 6363.5 as latest data from Germany showed business confidence falling for the sixth month in a row, the latest disappointing development from the eurozone's powerhouse economy.
Germany's Dax and France's Cac 40 were also lower while in New York, the Dow Jones Industrial Average was in the red at the time of the close in London.
Meanwhile US figures showing a sluggish pace of home sales growth saw the greenback weighed down against sterling, with the pound advancing at just over 1.61 US dollars.
Sterling was little changed against the single currency at just below 1.27 euros.
The pressure on banks came after 24 out of 123 institutions subjected to stress tests failed to meet the threshold for a 5.5 per cent capital buffer under an exercise by the European Banking Authority on how they would cope in the event of a crisis.
The results of the tests were better than some analysts had been expecting but came in the context of ongoing fears about the health of eurozone markets.
Italy's Monte dei Paschi di Siena saw shares fall by a fifth in the session that saw the stock suspended - after it was found to have the biggest capital shortfall of 2.1 billion euros (£1.65 billion).
Lloyds Banking Group came the closest to the capital buffer in the exercise, falling to 6.2 per cent though it said this did not reflect "significant progress" made this year. The possible resumption of the state-backed lender's dividend after six years is expected by analysts to be dependent on how it fares in the Bank of England test.
Shares were off two per cent, or 1.4p to 75.3p ahead of a trading update, when the company is likely to announce 9,000 job cuts over the next three years. Among other successful banks in the European test, Royal Bank of Scotland was 5p cheaper at 359.2p and Barclays eased 4.5p to 221.8p.
TUI Travel rose two per cent or 9.1p to 374.7p, Intercontinental Hotels lifted 51p to 2268p and British Airways owner International Airlines Group rose 6.5p to 389.8p.
The biggest risers on the FTSE 100 Index were TUI Travel, up 9.1p to 374.7p, Intercontinental Hotels Group, up 51p to 2268p, Reed Elsevier up 17p to 995p and International Airlines Group up 6.5p to 389.8p
The biggest fallers on the FTSE 100 Index were Royal Mail down 14p to 443.8p, Smiths Group down 31p to 1121p, Fresnillo down 20.5p to 746p and Aberdeen Asset Management down 10.6p to 400.9p.
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