Banking stocks led the FTSE 100 lower on Thursday as investors booked profits after gains of nearly 6% in the past three sessions, although hopes of a bigger U.S. stimulus package under a Democrat administration helped limit losses.
The blue-chip FTSE 100 reversed early gains to drop 0.3%, with banking stocks slumping 1.2%, while Sainsbury surged to the top of the index.
Shares of the supermarket owner jumped 5.3% after it raised its full-year profit forecast as it benefited from Covid-19 restrictions that forced people to stay at home.
The domestically focussed mid-cap FTSE 250 declined 0.5%.
"Following yesterday's strong 3% rally, it becomes a little difficult to maintain such uptrends and that has led to a lot of profit-taking this morning, but there does not seem to be any damage to the optimism in the market," said David Madden, an analyst at CMC Markets.
Surging coronavirus cases and fears of a new wave of corporate bankruptcies have ratcheted up concerns around the economic damage from the Covid-19 pandemic.
Around 4,000 financial firms in Britain were at "heightened risk" of collapsing due to fallout from the first wave of the pandemic, the Financial Conduct Authority said.
Global equity markets, on the other hand, gained in anticipation of big borrowing and big spending under the Democrat administration which would help support economic growth at a time the coronavirus crisis continues to ravage several businesses globally.
London-listed shares of Europe's largest low-cost carrier Ryanair dropped 2.7% after it slashed its annual traffic forecast due to fresh lockdowns in the United Kingdom and Ireland.
British discount retailer B&M fell 0.5% even as it reported a jump in quarterly sales, while fashion retailer Joules dropped 3.9% after reporting a plunge in total store sales in a seven-week period that included the holiday season.