A trader monitors the screen on a trading floor in London.

London - Britain's top share index retreated from a two-month closing high on Tuesday, tracking steep losses on Wall Street, with concerns about the fourth-quarter earnings season hurting cyclical sectors such as financials.

The blue-chip FTSE 100 index fell 0.5 percent to 6,723.59 points by 10:59 SA time after finishing 0.3 percent stronger in the previous session at 6,757.15 points, the highest close since early November.

“The Q3 reporting season was a disaster and I expect the 4Q won't be much better. The absence of good news in the fourth quarter reporting season is likely to be a headwind for the market,” Daniel McCormack, strategist with Macquarie, said.

“When earnings disappoint, cyclicals, which are more exposed to that, are going to get hurt more than defensives.”

Banks, telecom, insurers, miners and energy were among the top decliners, with Royal Bank of Scotland down 2.1 percent, Prudential falling 1.2 percent and BP down 1.3 percent.

The UK banking index fell 0.6 percent and the energy index dropped 0.8 percent.

European stocks, including the UK market, mirrored sharp losses in the United States on Monday, with major indexes closing 1.1 to 1.5 percent on caution ahead of corporate results from some major US companies like JPMorgan and Wells Fargo on Tuesday.

Negative pre-announcements have left a poor profit outlook.

“Investors are, belatedly, waking up to the likelihood that the Q4 earnings season will be dire,” said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

“Our strategy is to stick to earnings quality ahead of the results season. We believe that investors will pay up for reliability.”

Charts showed the FTSE 100 fell below its 6,730 support level, a high in November, and was showing a trend of lower lows since the start of this year.

The index could find some support at a recent low of 6,680, but a fall below the level could open the door for declines towards 6,422, a December low.

However, traders remained positive on the stock market's outlook in the medium term and said that an improving global economic backdrop will keep supporting equities.

“US and UK corporate earnings, coupled with economic data in the near term, will provide some turbulence, but in the bigger picture this should prove nothing more than a storm in a teacup,” Marc Kimsey, senior trader at Accendo Markets, said. - Reuters