The FTSE 100 suffered one of its worst sessions in recent months following a surprise increase in UK unemployment and continued political uncertainty in Europe.
The Office for National Statistics (ONS) said the rate of UK unemployment lifted to 4.4% in the three months to April, up from 4.3% in the three months to March. This marked the highest level for two years.
The increase defied expectations and signalled potential weakness in the economy.
London’s top index finished 80.67 points, or 0.98%, lower to end the day at 8,147.81.
Investors in the banking sector continued their sell-off from Monday, which had been driven by worries over the snap election in France.
President Emmanuel Macron’s decision was described as “credit negative” according to influential ratings firm Moody’s, weighing on sentiment across the continent.
The Cac 40 in France ended 1.33% lower and the German Dax index was down 0.66% at the close.
Axel Rudolph, senior market analyst at IG, said: “European stock indices resumed their descents, sliding by around a percent, as investors switched out of these, following the shift to the right in the European parliamentary elections.
“The FTSE 100 briefly dipped to a five-week low as UK unemployment hit its highest level since September 2021 while average earnings remained stubbornly high.”
In the US, the Dow Jones was firmly in the red on the opening bell amid weakness in financial stocks but the tech heavy Nasdaq lifted amid optimism around Apple.
Meanwhile, sterling struck its highest level against the Euro for almost two years due to concerns over the French economy and speculation of delays to interest rate cuts in the UK.
The pound was down 0.07% at 1.272 US dollars and was up 0.26% at 1.185 euro.
In company news, FirstGroup reported that its annual profits surged over the latest year but cautioned over the impact of a possible renationalisation of UK railways should Labour win the General Election.
The bus and train firm also acknowledged ongoing strike action within the rail sector which it said was continuing to cause “challenges”.
Nevertheless, it told investors that its underlying operating profits were more than a quarter higher over the year to the end of March, compared with the prior year. Shares in FirstGroup were 2.8% lower at close.
Elsewhere, investors in GSK appeared unaffected by news that the pharmaceuticals giant was kicking off an appeals process in the long-running court battle over heartburn drug Zantac.
GSK has long refuted claims that the medicine has potential cancer-causing risks.
But, earlier this month, a US court ruled that it would have to face a trial by jury over the allegations, which led its share price to drop. Its share price was down just 0.4% at close on Tuesday.
Elsewhere, a barrel of Brent crude oil was up by 1.7% to 80.37 US dollars as markets were closing in London.
The biggest risers on the FTSE 100 were: Hikma Pharmaceuticals, up 43p to 1,973p; Rentokil, up 5.9p to 415.2p; ConvaTec, up 3.2p to 248.6p; Intermediate Capital, up 24p to 2,270p; and RS Group, up 7p to 708.5p.
The biggest fallers on the FTSE 100 were: Antofagasta, down 92p to 2,067p; Standard Chartered, down 32p to 721.2p; Marks & Spencer, down 13p to 296.6p; Admiral Group, down 94p to 2,563p; and Unite Group, down 27.5p to 882.5p.