Publications
Partners
By 1335 the FTSE 100 was 15.15 points or 0.3% lower at 5 756.14 after it gained 0.7% on Monday.
China will raise its benchmark one-year lending and deposit rate by 25 basis points effective from October 20, the central bank said on Tuesday.
This put pressure on mining stocks on worries that higher borrowing costs may crimp demand in the fast-growing economy.
Xstrata was the biggest faller, down 4.7%, also pressured by mixed third-quarter production figures for its two key products.
Rio Tinto fell 1.8% while Vedanta Resources lost 2.3%.
"It has ramifications for the mining stocks, but you could argue that it reflects a move to prevent a real estate bubble which will be good for the country in the medium term," Graham Secker, European equity strategist at Morgan Stanley, said.
"I don't think it heralds the start of more rate rises elsewhere."
Banks were the biggest support for the index, lifted by better-than-expected results from Citigroup on Monday.
Bank of America Corp, the largest U.S. bank by assets, said on Tuesday that its third-quarter net loss quadrupled from a year ago.
However, excluding a non-cash goodwill charge the bank reported net income of $3.1bn, or 27 cents per share, beating analysts' forecast for EPS of 16 cents, according to Thomson Reuters I/B/E/S.
Majority state-owned Royal Bank of Scotland added 2.4% while Barclays gained 1.6%.
Technical support
The index has posted nearly 10 percent gains since the start of September, and technical analysts see little in the way of obstacles for further strength.
"The index has broken out of the summer range and has stayed above that ever since, it's taken out a lot of retracement levels," said Phil Roberts, chief European technical strategist at Barclays Capital.
"The market has been doing well, a nice steady grind higher."
Energy stocks fell, weighed down by a 1% drop in the price of crude oil. BG Group, BP and Royal Dutch Shell all declined 0.3% - 0.8%.
ARM Holdings retreated 2.6%, pressured as Apple -- for whom it designs chips -- disappointed investors with weaker-than-expected gross margins and iPad shipments.
British factory orders fell at their sharpest pace since April, the CBI's October industrial trends survey showed on Tuesday.
But David Buik, senior partner at BGC Partners, said the outlook for UK equities looks to be set fair, despite tough times ahead for the domestic economy.
"(The FTSE 100) pays decent dividends, 70% of earnings come from overseas and we've been cheered so far by a decent set of earnings, and I don't see any other asset class as looking attractive."
Autonomy bucked a weaker trend for European tech stocks, gaining 4.4% to top the blue-chip leaderboard after it said fundamental demand for its products remained strong and it could still beat expectations for 2011.
