By Alistair Smout
LONDON (Reuters) - Britain's top share index fell sharply late on Friday as U.S. stocks dropped, taking the shine off May's gains.
The FTSE 100 index (FTSE) had fallen 56.49 points, or 0.8 percent at 6,984.43 by the close. The majority of the decline came in the last half hour of trade.
Traders said the volatility was caused by end-of-month positioning heading into the weekend, with investors nervous over developments in Greece's talks with international lenders.
Euro zone officials suggested a deal was far from imminent, despite Greek hopes that a deal would be struck by Sunday. (EU)
"It appears that the sell-off is simply a culmination of factors including month-end profit taking and rising concerns over the Greek debt situation," Tony Cross, market analyst at Trustnet Direct, said in a note.
"There had been talk of a resolution being reached over the weekend but traders seem to be bracing themselves for disappointment come Monday morning."
Selling on Wall Street also put pressure on the FTSE. U.S. stocks fell after data showed the U.S. economy shrunk in the first quarter and corporate profits declined the most in a year.
The slump left the FTSE 100 up just 0.3 percent this month.
The index has rallied 2.6 percent since lows hit on May 7, boosted by a Conservative election victory that investors said removed uncertainties over regulation and the economy.
However, British investors slashed their equity holdings to near a three-year low in May, wary of being too exposed to record-high stocks and instead opting for the relative safety of bonds, a Reuters poll has found.
Consumer staple stocks fell, trimming 14.4 points off the FTSE 100, with traders saying a weak consumer confidence survey had dampened sentiment.
A survey from market research company GfK showed optimism about the British economic situation over the next 12 months fell to its lowest level since January. Britons also become less upbeat about their personal financial prospects.
Leading consumer stocks such as Wm Morrison (L:MRW) and leisure stocks sensitive to consumer spending such as International Consolidated Airlines Group (L:ICAG) and TUI (L:TUIT), fell 2.4 - 2.4 percent.
Bucking the trend, Associated British Foods (L:ABF), owner of British Sugar and budget fashion retailer Primark, rose 2.6 percent to 3,028 pence.
Traders attributed the rise to Goldman Sachs lifting its rating on the share to "buy" from "sell" and increasing its price target to 3,120 pence from 2,755 pence.
"Our analysis of the U.S. market suggests that Primark's launch (due in autumn 2015) will be a success," Goldman Sachs said in a note.
Weir Group (L:WEIR) was among top gainers, up 2.4 percent after Credit Suisse (SIX:CSGN) raised its target price on the stock and maintained its "outperform" rating.