Mortgage banks and housebuilders were unwanted today and left the market nursing losses once again.
Retailers were also weaker after a CBI distributive trends survey showed shop sales grew more slowly than expected in June, mainly due to poor weather and the effect of rising interest rates.
With the deputy governor of the Bank of England warning rates were too low - suggesting a move upwards at the Bank's meeting next week - the FTSE 100 closed 31.7 points lower at 6527.6. Wall Street did little to help sentiment, opening weaker ahead of a rate decision by the US Federal Reserve tomorrow.
Northern Rock was the biggest faller, down 113.5p to 834p after it cut its profit forecasts for 2007 due to a rise in funding costs after the recent rate rises. Rival mortgage lenders were also hit, with Alliance & Leicester down 29p to £10.91 and Bradford & Bingley 15.5p lower at 394.75p.
Among the housebuilders Taylor Woodrow and George Wimpey - which are finalising their proposed £5bn merger - fell back after they both warned of worsening conditions in the UK and US housing markets. Taylor lost 9.75p to 369p and Wimpey was 12.5p lower at 513p. Persimmon fell back in sympathy, down 12p to £11.58, and Barratt Developments lost 16.5p to 985.5p.
Department store group Debenhams lost 5.25p to 127p while DSG International - the former Dixons - slipped 3.5p to 158.5p. Supermarket giant Tesco fell 3.5p to 422.75p as JP Morgan downgraded from neutral to underweight, saying "a lack of UK sales momentum is likely to weigh on the share price".
Other supermarkets fared better. Morrison added 6p to 296p after traders said the appearance of Deutsche Bank on its share register with a 3.01% stake could be the prelude to some shareholder activism.
And J Sainsbury rose 4p to 577p as talk of a 610p a share bid refused to die down.
ITV added 1p to 111.6p after Citigroup turned positive on the company. It upgraded from hold to buy and raised its target price from 108p to 140p.
The investment bank said ITV's shares had fallen 7% against the FTSE All Share since its annual meeting. "But advertising buyers' forecasts have improved, ITV's audience share in May was strong as Big Brother struggled, and June audiences are stronger still," it said.
Vodafone continued to climb, partly on hopes of consolidation in the telecoms market but mainly on hopes the company will be picked as Apple's partner to launch the iPhone in Europe. According to Dutch magazine Bright, Apple wanted a guaranteed sales volume, which Vodafone did not want to give. Analysts still believe Vodafone - up 3.8p to 163.8p - is favourite for the deal for the iPhone, which launches in the US on Friday.
Also on the way up was transport group Stagecoach, up 9.75p to 181.25p after it unveiled a 38% rise in full-year profits, while Jordanian pharmaceutical group Hikma added 11p to 375p as it made an upbeat trading statement.
Larger rival AstraZeneca added 76p to £26.59 as traders reported investors seeking out quality companies in the current uncertain climate, while British Gas-owner Centrica benefited from a positive note from Credit Suisse. Centrica climbed 3p to 385.75p as Credit Suisse raised its target price from 390p to 420p.
Aerospace and defence group BAE Systems edged higher, recovering 2.75p to 410.5p, after yesterday's falls in the wake of a US department of justice bribery investigation.
And leisure group Rank rose 4.75p to 180.5p after Deutsche Bank raised its recommendation from sell to hold.
But Scottish & Newcastle, recently puffed up by bid speculation, slipped 6p to 644.5p. And miners were lower as base metal prices slipped back. Lonmin lost 116p to £39.41 and Kazakhmys was 37p lower at £12.40.
Hedge fund manager Man Group fell 19p to 589p after its key AHL Diversified Futures fund saw its net asset value slip 1.33% last week.
Further down the market technology group NXT, best known for its flat loudspeakers, added 1.25p to 15.5p after it announced that Toyota's new Voxy and Noah minivans will include the company's roof liner speaker systems as standard. The vans are launched in Japan today.
Still with transport, electric vehicle maker Tanfield accelerated 10p to 184p as it raised £115m with a placing at 163p a share, to fund a substantial acquisition.
CI Traders, the retail and leisure conglomerate, jumped 5.75p to 98.25p after an agreed 100p a share cash offer from a consortium including Duke Street Capital.
Tristel, a provider of infection and contamination control products, added 2p to 65p after an upbeat trading statement, while plastic packaging company RPC rose 11.5p to 290p after Panmure Gordon issued a buy note with a 318p target price.
Elsewhere biodiesel company Biofuels lost another 2.03p to 5.17p after this week's news of a restructuring which will leave Barclays Bank with 94% of the company. EXC, which designs and distributes a range of leather garments, slumped 0.25p to 0.4p as it reported doubled losses for the year of £3.7m, and said strategies to win new business were taking longer than expected to bear fruit.
Finally property search specialist PSG Solutions was 3p better at 75.5p after moving from a full-year loss of £0.7m to a profit of £3.7m.