Banks were hit after Obama announced far-reaching proposals to limit the size and activities of US lenders. France, Britain and Germany offered support on the plans but fell short of pledging to follow suit. Barclays, Royal Bank of Scotland and HSBC fell 0.2 to 4.1 percent but Lloyds Banking Group bucked the trend, adding 0.6 percent.
"It's the Obama news, and (US) bank earnings reports were mixed, so there's a lot of uncertainty in the ring," said Richard Hunter, head of equities at Hargreaves Lansdown. ICAP, the world's largest inter-dealer broker, was the biggest faller, down 6.6 percent on worries the Obama move will also curb its business, while shares in the London Stock Exchange lost 4.3 percent.
Energy stocks, Royal Dutch Shell, BP and BG Group fell 0.2 to 1 percent as the shaky demand outlook pushed oil back to around $75 per barrel. The index was knocked further after quarterly results from US bellwether General Electric failed to reassure investors. "It's difficult to see what would be the catalyst in the short term for appreciation in this market," Tim Whitehead, investment manager at Redmayne-Bentley said.
Data from the UK's Office for National Statistics added to the gloom after it reported British retail sales volumes rose by much less than expected in December as a large rise in prices deterred shoppers from splashing out over Christmas. The news sent the general retailers down with Home Retail off 1.9 percent, while Marks & Spencer and Next dropped 0.7 and 1.2 percent respectively.
Profit-takers moved in on pharmaceutical stocks, which were among a select group of stocks in positive territory in the previous session on hopes Obama's healthcare plan will stall and as investor risk appetite waned. AstraZeneca, boosted on Thursday by a Morgan Stanley upgrade, shed 0.8 percent.
GlaxoSmithKline and Shire shed 1 and 0.7 percent respectively. On the upside, British engineer Invensys rose 1.2 percent after it said cost savings and higher margins in its controls unit delivered a better third-quarter operating profit, and it expected a resumption of large industrial orders.
Miners were broadly higher, recovering some of the sharp losses the previous session, with Xstrata the pick of the bunch, up 2.4 percent, helped as it said a new estimate of its Frieda River project in Papua New Guinea shows a 26 percent increase in resource tonnage. Eurasian Natural Resources added 1.7 percent while Kazakhmys gained 1.1 percent.