A deal between legislators in Washington to avert another budget crisis might have been expected to calm nerves but instead has heightened expectations that the US Federal Reserve will be able to taper its multi-billion dollar quantitative easing programme.
The FTSE 100 closed down 62.47 points at 6,445.25 while Germany’s Dax and France’s Cac 40 were also in the red.
David Madden, market analyst at IG, said: “Stocks are sliding as the wind of change picks up. Equity markets are edgy ahead of next week’s US Federal Reserve meeting; judging by the sea of red on trading screens, investors are pointing towards a taper.”
Royal Bank of Scotland fell heavily for a second successive session, as traders digested Wednesday’s announcement that it will pay $100 million (£61m) in fines over sanctions-busting allegations to American authorities.
Shares were off nearly 3 per cent, or 9.2p, at 317.7p, on top of a similar fall in the previous session after the surprise announcement of the departure of its finance boss.
Lloyds Banking Group, which was hit with a £28m fine this week for serious failings in its sales practices, dropped 1.8p to 75.6p.
Shares in outsourcing firm G4S and Serco were lower after justice secretary Chris Grayling said they would lose contracts for electronically tagging criminals to rival firm Capita following an overcharging scandal.
G4S fell 2.8p to 257.5p and Serco dropped 6p to 438.5p