The FTSE 100 fell 31.46 points, or 0.6 percent, to 5,668.45, albeit in light volume, at 79 percent of the 90-day daily average.

Banks knocked the most points off the FTSE 100 as worries surrounding the sector crept back in when UniCredit priced its 7.5 billion euro rights issue at a discount of 69 percent to its closing share price on Tuesday.

Gerard Lane, strategist at Shore Capital, said there were fewer worries surrounding UK-listed Barclays, HSBC and Lloyds' need for recapitalisation, but much depended on the fate of European economies and their debt restructurings.

And while the German 10-year auction was an improvement on a similar debt sale last November, which triggered fears Europe's debt crisis was spreading to its biggest economy, it was not enough to calm jittery investors.

I think there's just a bit of realism today, Angus Campbell, head of sales at Capital Spreads, said.

The ugly head of Europe has reared again. We've not had the best of auctions from Germany ... which has just reminded people that the overall euro zone crisis is still very much there and a huge threat to the economy.

The UK benchmark had on Tuesday lurched to its highest close since late October when traders, spurred on by positive data from the United States, Europe and China, had put cash to work at the start of the new year.

This was followed on Wednesday by encouraging domestic data, with British mortgage approvals rising to their highest level in almost two years in November.

Nevertheless, the euro zone debt situation still very much holds centre stage.

Martin Dobson, head of trading at Westhouse Securities, sees little in the way of catalysts to jolt the FTSE 100 out of the top of its trading range of recent months -- about 5,900 -- given the prerequisites to end the crisis have not been met.

Nobody's really got a fully-fledged plan that's going to be agreed by everyone ... I think it's (all about) getting actual working agreements (between the policymakers).

And I think the problem that you've got is an awful lot of governments are slim majorities and are always going to be pandering to the electorate rather than to the economic situation.

Retailers provided yet another downbeat focus for the market after a slightly cautious outlook statement weighed on Next's latest trading update, with earnings downgrades expected, sending the shares down 3.1 percent.

As a likely outperformer, the Next statement does not set a positive tone for competitor updates, Peel Hunt said.

Marks & Spencer shed 2.6 percent, while Kingfisher , owner of B&Q, slipped 0.5 percent.

Satellite pay-TV broadcaster BSkyB fell 1.6 percent, with traders pointing to a report in the Daily Mail newspaper which said Apple could bid for rights to show soccer matches from England's Premier League.