The FTSE 250 <.FTMC> ended slightly off the day's lows but still shed 0.6%, handing back part of the more than 4% gain it had recorded in the previous session which was its best in nearly a decade.
Britain and the European Union said over the weekend that a lot more work would be needed to secure a Brexit agreement.
JP Morgan's UK domestic plays index <.JPDEUKDM>, tracking about 30 UK stocks that make all or most of their revenue at home, pulled back nearly 1%. It had jumped almost 8% on Friday, its best day since the basket was created nearly three years ago.
Blue-chip banks like Lloyds and Barclays and housebuilders <.FTNMX3720> skidded, dragging the FTSE 100 0.5% lower.
"On balance I feel the situation here is still fairly unpredictable... I think it's far from clear we have a pathway yet," said Paul O'Connor, head of the UK-based Multi-Asset Team at Janus Henderson.
The main index was also hurt by a drop in miners <.FTNMX1770> after disappointing imports and exports data from top metals consumer China.
Mid-cap Sophos Group scaled its highest level in more than a year at 586.8 pence, after private equity firm Thoma Bravo said it would take the company private in a 583 pence per share deal.
Shares of its peer Avast also rose 2.6%.
Sentiment around the U.S.-China trade situation also tempered somewhat after a rally in global stocks last week on signs of progress in negotiations that culminated with President Donald Trump outlining the first phase of a deal and suspending a threatened tariff hike.
"We welcome it but it's a very fragile truce. The fact that it wasn't written down is the most important thing. It shows what a challenge it is to converge on a hard agreement," O'Connor said.
Ad firm WPP, which lost 4% in the previous session after French rival Publicis cut its sales view for the second time, ended 2.8% higher.
Royal Mail, relegated to the FTSE 250 earlier this year, slipped 2.4% after a report https://www.thetimes.co.uk/article/royal-mail-boss-rico-back-faces-threat-of-christmas-strike-chaos-d3mm0gf2j that the company was facing the threat of an employee strike over Christmas.
Car dealership chain Pendragon, whose stock has nearly halved in value this year, climbed 10%. Automotive News reported https://europe.autonews.com/retail/pendragon-names-us-retail-veteran-berman-interim-ceo Pendragon had named interim Executive Chairman and former AutoNation COO Bill Berman as interim CEO.
GRAPHIC: Share performance of Sophos and Avast vs FTSE 250 since 2018 - https://fingfx.thomsonreuters.com/gfx/mkt/12/7337/7268/Pasted%20Image.jpg
(Reporting by Shashwat Awasthi in Bengaluru, additional reporting by Josephine Mason in London; Editing by Bernard Orr and Ed Osmond)
By Shashwat Awasthi