Royal Bank of Scotland led London's top flight into the red on Tuesday after the Government confirmed it was offloading £2.5 billion worth of shares at a mammoth loss to the taxpayer.

The FTSE 100 ended the day down 0.7%, or 54.49 points, at 7,686.8, with RBS among the biggest fallers.

Shares in the bailed-out bank ended down 14.9p at 266p.

It came after UK Government Investments (UKGI) sold 925 million RBS shares at 271p each, bringing the public holding in RBS down from approximately 70.1% to 62.4%.

However, the taxpayer will book a £2.1 billion loss on the sale.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that the market reaction showed traders bringing the share price "into line with the price offered by the Government".

He added: "We can expect this pattern to repeat as the Government continues its sale in the next few years.

"In the long term the Government selling down its stake in the bank is a positive development for RBS shareholders, as it represents a gradual return to business as usual.

"However, when the majority shareholder in a business is disposing of such a large stake, that's inevitably going to lead to some downward pressure on the share price."

In Europe, France's Cac 40 closed down 0.22% and Germany's Dax closed up 0.13%.

In currencies, sterling was buoyed by the closely-watched Markit/CIPS services purchasing managers' index (PMI), which showed a reading of 54 last month, up from 52.8 in April.

It indicates that Britain's economy is on course to rebound from a snow-hit start to 2018.

The positive data also fuelled expectations for the Bank of England to rekindle its plans to hike interest rates, with economists saying an increase from 0.5% to 0.75% was "firmly on the table" for August.

The pound was up 0.3% against the dollar at 1.33 and up 0.5% versus the euro at 1.14.

In stocks, Sky ended the day 4p higher at 1,354p as the prospect of a bidding war between 21st Century Fox and Comcast for the broadcaster moved a step closer.

Culture Secretary Matt Hancock told Parliament that Sky News must be sold if Rupert Murdoch's Fox is to secure Government approval for its £11.7 billion takeover.

Fox has already submitted proposals to divest Sky News to Disney.

A separate £22 billion bid for Sky from US broadcasting giant Comcast was cleared by Mr Hancock, setting the stage for a bidding war with Fox.

Shares in Yorkshire Post publisher Johnston Press crumbled after the company logged a fall in revenues and warned of "continued pressure" amid new data protection rules and paper prices.

The publisher said in a trading update that revenues slumped 9% in the period between January 1 and May 31, despite a "strong performance" from the i newspaper.

Its stock closed 1.38p down at 7.12p.

The price of Brent crude was down 1.26% to 74 US dollars per barrel.

The biggest risers on the FTSE 100 were Antofagasta up 29p at 1,114p, Burberry up 50p at 2,141p, Glencore up 6.85p at 389.7p and Smurfit Kappa up 40p to 2,920p.

The biggest fallers on the FTSE 100 were Carnival down 312p at 4,561p, RBS down 14.9p at 266p, International Consolidated Airlines down 24.6p at 679.8p and Old Mutual down 8.1p at 232.9p.