London's top-flight index slipped further into the red as investors punished the Royal Bank of Scotland (RBS) following its ninth consecutive year of losses.
The FTSE 100 Index closed down 27.67 points to 7,243.7, with RBS emerging as the biggest faller on the market after revealing a £7 billion annual loss, one of the group's biggest since its Government bailout in 2008.
Shares in RBS were down more than 4%, or 11.2p to 238.2p, with chief executive Ross McEwan also ordering a four-year cost-cutting drive, expected to result in significant job losses and branch closures.
RBS has now notched up losses totalling more than £55 billion over the past eight years.
Jasper Lawler, senior market analyst at London Capital Group, said RBS' dismal performance was a key factor in the London market hitting a two-week low.
" The UK benchmark had come within a hair's breadth of record territory last week and seems to have, at least temporarily, given up the ghost," he added.
Across Europe, Germany's Dax was off 1.2% and the Cac 40 in France fell 0.9%.
Sterling gave up Thursday's gains to drop 0.4% against the US dollar to 1.249 and fall 0.4% versus the euro at 1.180.
The cost of oil also took a tumble as US crude inventories climbed for a seventh week on the bounce, hampering attempts to cut global supply and support prices.
Brent crude was off 0.9%, or 48 cents, to 56.10 US dollars a barrel.
In UK stocks, airlines were in the ascendancy as investors cheered results from British Airways-owner IAG, which boosted profits despite suffering a blow from the Brexit-hit pound.
Shares were up more than 4%, or 22.5p to 527p, after the group said overall operating profit rose 7.2% to 2.48 billion euro (£2.1 billion) in the year.
However, revenues slid 1.3% to 22.57 billion euro (£19.1 billion) in the year to December 2016, with Brexit also affecting demand at British Airways.
IAG, which also owns the Aer Lingus and Iberia airlines, issued a profit warning after the EU referendum on June 23, and in October warned ticket prices may have to rise as a result of sterling's slump.
Shares in easyJet also rose 17p to 931.5p.
Away from the top tier, William Hill pushed ahead despite a run of bad betting results taking its toll on profits.
The bookmaker said adjusted operating profit slumped 10% to £261.5 million in the year to December, with William Hill taking a huge hit on Boxing Day.
Punter-friendly football and horse racing results thumped the betting giant last year, but Liverpool's poor start to this year is helping business bounce back.
Shares were up 6.6p to 268.5p, as revenues rose 1% to £1.6 billion over the period.
The biggest risers on the FTSE 100 Index were IAG up 22.5p to 527p, Hikma Pharmaceuticals up 41p to 2,109p, easyJet up 17p to 931.5p, Pearson up 11p to 657p.
The biggest fallers on the FTSE 100 Index were Royal Bank of Scotland down 11.2p to 238.2p, Rio Tinto down 102.5p to 3,315.5p, BHP Billiton down 39.5p to 1,308p, Ashtead Group down 48p to 1,635p.