LONDON (Reuters) - Shares fell sharply from two week highs on Wednesday after concerns over growth in Europe and the U.S. swamped initial relief that the U.S. presidential election had been settled quickly.
The European Union issued its growth forecasts for the region, which were more pessimistic than national government predictions and estimated a bigger than predicted contraction for the euro zone area.
"I think the Obama re-election was a positive readacross, but since then the market is probably focussing on other near-term negative news in Europe and Greece," said Carol Ferguson, analyst at SP Angel, referring to a tense vote in Greece tonight where the government is trying to pass key austerity measures inline with conditions of international lenders.
London's FTSE 100 closed down 93.27 points, or 1.6 percent, at 5,791.63 points, reversing morning gains of 0.4 percent after U.S. President Obama's clear victory against Republican candidate Mitt Romney.
The election result averted the outcome most feared by investors and traders, who did not want the president's close contest with Romney to remain unresolved past Wednesday morning.
However, with the election over, concerns over a likely standoff in "fiscal cliff" talks - about $600 billion in spending cuts and tax increases due next year - moved to the forefront of investors' minds, SP Angel's Ferguson said.
The reminders of the threat to both European and U.S. growth next year hit high beta stocks, which track risk sentiment, the hardest, with energy, mining and banks leading the index down.
Randgold was the biggest loser in the index, shedding 6.4 percent after it said third quarter profit fell 15 percent, threatening the company's full-year targets.
"It's a bit of a mix. They were below consensus and that's why they're off," Cailey Barker, analyst at Numis Securities, said.
"There's some positivity of the project side of things, but overall we weren't expecting a great quarter anyway, so the move down in the market is pretty fair."
While the turnaround in the session's trading was stark, it was anticipated by some traders who saw the FTSE as struggling to break out of a narrow 200-point range that it has been stuck in since September.
There is now significant resistance just above the 5,900 level, and as the index hit those levels, some saw an opportunity for profit taking.
"The short term money might be thinking about selling the recent rally, just because we could see the election result coming in the last few days, and now attention turning towards the fiscal cliff, and with Europe coming back into focus," Will Hedden, trader at IG Index, said.
Another trader described the European Union's pessimistic growth forecasts as a "catalyst - or excuse if you like - for people to cut back a bit."
"But we would've expected some weakness after last night's run higher anyway," he said.
(editing by Ron Askew)