The London market continued its grim week today after worse than expected results from Lloyds Banking Group sparked losses for financial stocks.
The FTSE 100 Index closed down 64.1 points at 5920 after the part-nationalised bank shocked analysts by setting aside up to £3.2bn (€3.6bn) to pay compensation to customers mis-sold payment protection insurance.
Lloyds, which dropped 4.6p to 53.4p and was among the top flight's biggest fallers, sent ripples through the rest of the heavily weighted banking sector.
Wall Street's Dow Jones Industrial Average was also down, dropping 0.4% after the US government reported an unexpected jump in unemployment claims.
The US Labor Department compounded low sentiment when it said first-time claims for unemployment benefits rose to 474,000 last week, the highest level in eight months. Economists had expected claims would drop to 410,000.
Despite the weak economic data from the US, the pound fell to 1.64 against the dollar but it was up to 1.24 against the euro.
A recent fall in commodity prices, particularly in silver, ensured mining stocks remained under pressure. Fallers in London included Xstrata after a drop of 38p to 1410p, while Fresnillo saw a decline of 70p to 1445p.
But the main focus was on the banking sector after Lloyds reported that its decision not to contest a recent High Court ruling would cost it more than the £1.5bn (€1.68bn) estimated by the City. The provision dragged the bank into the red for the first quarter, while it also saw an increase in bad debt losses.
Royal Bank of Scotland, which is due to post a trading update on Friday, fell 1.2p to 40.5p, while Barclays was off 7.5p to 276.3p as analysts speculated on how the Lloyds' guidance would impact on other leading industry players.
Schroders topped the fallers board after the fund manager's first quarter results highlighted the impact of market volatility on retail investor demand. Shares were 172p lower at 1700p, a drop of 9%.
Elsewhere, shares in Morrisons were up after the supermarket chain posted stronger-than-expected like-for-like sales growth of 2.5% for the 13 weeks to May 1 after being boosted by the later Easter and the royal wedding.
Shares increased 3p to 303.3p even though the firm said the current squeeze on disposable incomes meant it remained cautious about prospects going forward.
Outside the top tier, Southern trains provider Go-Ahead said sky-high fuel prices were encouraging more motorists to ditch their cars and use public transport. Buoyed by strong revenues growth, it said operating profits for the year to July were now likely to be ahead of current expectations. Shares were down 1p to 1400p.
The biggest Footsie risers were Carnival up 102p at 2550p, Smith & Nephew ahead 20p at 680p, International Consolidated Airlines up 6.6p at 246p, and Arm Holdings ahead 9p at 567p.
The biggest Footsie fallers were Shroders down 172p at 1700p, Lloyds Banking Group, off 123p at 1398p, Essar Energy down 4.6p at 53.4p, and Fresnillo off 70p at 1445p.