By Sudip Kar-Gupta and Alistair Smout
LONDON (Reuters) - The FTSE lost ground on Tuesday, as a drop in Asian-focused bank Standard Chartered (L:STAN) and Provident Financial (L:PFG) weighed on the market.
The blue-chip FTSE 100 index (FTSE) closed down 0.8 percent, with banks making up four of the top five fallers.
The growth-sensitive sector (FTNMX8350) ended down 2.2 percent, extending falls after ISM data that showed the U.S. services index fell by the most since the financial crisis in August.
Standard Chartered fell 3 percent, the worst-performing stock on the FTSE 100, after Barclays (LON:BARC) cut its rating on to "underweight" from "equal weight".
Rival Asian-focused bank HSBC (L:HSBA) dipped 2.3 percent, while a price target cut from RBC Capital Markets on Provident Financial (L:PFG) pushed down its shares.
Traders said a rise in sterling also put pressure on the FTSE 100, whose internationally-focused and export-driven companies typically benefit when the pound weakens and which lagged other European markets.
Sterling hit a seven-week high against the dollar after the weak U.S. data, and also benefited from strong supply from a Bank of England bond buyback.
While that weighed on the FTSE 100, the FTSE 250 mid-cap index (FTMC) - whose companies are more exposed to the domestic economy - dropped just 0.1 percent.
Housebuilder Berkeley Group (L:BKGH), which is dropping out of the FTSE 100 after slumping on concerns about slowing demand following Britain's vote to leave the European Union, rallied 3.5 percent.
Berkeley said its market had stabilised after a jump in post-Brexit vote cancellations, while a similarly confident outlook drove up shares in rival housebuilder Redrow (L:RDW).
Clothes retailer Sports Direct (L:SPD) rose 5.2 percent after it said it would overhaul its employment practices and would offer directly employed shop workers the option of switching from 'zero hours' contracts to ones with a guaranteed minimum amount of work. [nL8N1BI0XI]
Horizon Stockbroking director Kyri Kangellaris said the FTSE 100 would be underpinned by record low interest rates in Britain, which have hit returns on bonds and cash and driven investors over to the better returns available from shares.
"Stocks are the least bad investment at the moment," he said.
The FTSE 100 has risen nearly 10 percent in 2016.