LONDON The FTSE 100 closed lower on Thursday as downbeat company earnings and mixed global economic data triggered the sharpest one-day fall on the index since mid-November.
Earnings were in focus after updates from British oil heavyweight Royal Dutch Shell and drugmaker AstraZeneca, and Facebook Inc in the United States, disappointed.
Shell alone took 16 points off the blue chip FTSE 100 index after its fourth quarter profit came in nearly $400 million short of expectations.
The FTSE closed down 46.23 points, or 0.7 percent at 6,276.88, edging away from mid-May 2008 highs of 6,376.
AstraZeneca shed 3.1 percent after warning of a tough year ahead, while in the United States No.1 social network Facebook fell 3.8 percent after its growth trailed the more aggressive estimates.
Temporary power provider Aggreko took its losses over the last five trading days to more than 11 percent, with traders citing recent press speculation about the potential for another warning on earnings when it reports in March.
British banks meanwhile face another round of compensation claims that could total billions of pounds after the regulator found they had widely mis-sold complex interest-rate hedging products to small businesses.
Royal Bank of Scotland shed 1.1 percent.
Retailer Kingfisher fell 1.5 percent after Nomura cut its target price and earnings estimates by 6 percent on the firm as it took a more pessimistic view of the UK market.
Recent results have put a dampener on investor optimism, which helped push markets up towards four-and-a-half year highs.
While 70 percent of European companies have so far beaten or met earnings estimates in the current reporting season, top analysts still expect fourth-quarter growth to fall 8.8 percent year-on-year.
After rallying 6 percent in January, Shore Capital strategist Gerard Lane said the FTSE looked "way too high given the near-term risks to earnings and the U.S. fiscal worries".
"However, I still think the FTSE 100 will see 7,000 by the year-end and if you are a smart investor you invest for the 7,000 now rather than wait for a correction that might never happen," he added.
British investment managers sharply increased their exposure to stocks in January as concerns of more financial instability receded and the market's recovery gathered pace, a Reuters poll showed on Thursday.
But while broadly expecting the stock market recovery to continue, they cautioned that a risk of setbacks remains, with many of the world's economic problems still not fully resolved.
"Our view remains that however well the economic rebound proceeds, this recovery will still lack the strength seen in other rebounds," Percival Stanion, Chairman of the Strategic Policy Group at Baring Asset Management, said in a note.
"Deleveraging will continue; deficits will be reduced; households will tighten their belts. The journey will still be long, but one that is getting shorter with every step," he said.
Investors greeted BSkyB's offer to show its popular sports channels online for a daily fee with enthusiasm, pushing the shares up 1.0 percent. The company is seeking new customers to offset slowing growth at its core pay-TV service given sluggish consumer spending.
Diageo was a top riser, up 1.3 percent after the world's biggest spirits group ended talks to buy a stake in top-selling tequila brand Jose Cuervo.
Mixed macroeconomic data did little to imbue investors with the confidence needed to plough fresh money into markets already at multi-year highs.
Weak U.S. GDP data and downbeat comments from the Federal Reserve overnight were followed by jobless claims on Thursday, which pointed to a slow healing of the U.S. labour market.
Incomes in the world's biggest economy, however, rose in December by the most in eight years while U.S. Midwest business activity picked up to a nine-month high.
"Investors now seem likely to sit on the sidelines hoping to glean clues from tomorrow's non-farm payroll data," a London-based trader said.
U.S. employers are expected to have added 160,000 jobs to their payrolls in January after an increase of 155,000 in December. The unemployment rate is seen holding steady at 7.8 percent..
(Editing by Catherine Evans)