Banks ended 0.9% lower after initially adding over 2%, weighing on the FTSE 100, after the Bank of England scrapped pandemic-era curbs on dividends for top lenders with immediate effect.

The blue-chip FTSE 100 index was flat, with financial services company Natwest Group being the top loser, while energy major BP posed the top drag on the index. Travel stocks dropped 1.0%.

"UK banks aren't U.S. banks and anyone expecting a big increase in payouts needs to temper their optimism, which probably helps explain why, despite an initial move higher, the bulk of, if not all of, today's gains have disappeared," said Michael Hewson, senior market analyst at CMC Markets.

The mid-cap FTSE 250 index climbed 0.1% with retailer Howden Joinery Group the top gainer on upbeat earnings updates as its share hit record highs.

The FTSE 100 has gained 10.6% so far this year, but has been largely range-bound near its 7,100-mark since June.

It has underperformed the wider European index -- which is currently trading near record highs -- after a recent jump in cases of a coronavirus variant sparked fears of a prolonged economic recovery.

Among stocks, UK commercial property firm British Land Co Plc fell 1.6% after it said it did not expect to grant further rent concessions to its tenants this quarter as the easing of coronavirus restrictions had boosted its trading.

BP Plc dropped 1.1% after it said it would buy the entire ownership of its Thorntons joint venture to expand its presence in the U.S. fuels and convenience retail business.

FTSE 100 underpeform stoxx 600

(Reporting by Shashank Nayar in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Mark Heinrich)

By Shashank Nayar