Berkeley (>> Berkeley), down 1.4 percent, was among the top fallers after Barclays downgraded the stock to underweight, saying its 40 percent year-to-date rally was at odds with the challenging conditions in the higher-end London market.
The broker also downgraded Persimmon (>> Persimmon), Redrow (>> Redrow plc), Bellway (>> Bellway) and Taylor Wimpey (>> Taylor Wimpey) and trimmed its price target on Barratt Developments (>> Barratt Developments), sending the shares of housebuilders down between 0.5 and 1.1 percent, although Redrow recovered to end up 1 percent.
"Although measures could be impactful, history suggests that they can lack teeth (solving our 'broken' housing market is not easy) and we believe expectations may have run ahead of themselves," Barclays analyst Jon Bell said in a note.
The autumn Budget is due to be delivered on Nov. 22.
The FTSE 100 <.FTSE> ended down 0.2 percent at 7,487.81 points, as the pound strengthened against the dollar ahead of Thursday's Bank of England meeting where the central bank is expected to raise interest rates for the first time in more than a decade. [nL8N1N520A]
"There is little doubt about the BoE's decision to raise rates at this week's meeting," Ipek Ozkardeskaya, analyst at London Capital Group, said in a note. "The pound recovery dents the appetite, except for the energy stocks".
HSBC Holdings (>> HSBC Holdings), which like other big international companies on the FTSE benefits from a weaker pound, fell 1.5 percent following its trading update.
HSBC reported rising costs, taking the shine off a better-than-expected quarterly profit driven by the Asian business that the bank has put at the heart of its growth plans.
"We were disappointed there was no operating leverage as costs rose 7 percent on increased discretionary spend," said Jefferies analyst Joseph Dickerson.
The analyst however affirmed his buy rating on the stock saying the results confirmed an expected rise in revenues.
Among other stocks that benefit from pound weakness, consumer companies British American Tobacco (>> British American Tobacco) and Diageo (>> Diageo) fell 2.1 percent and 0.8 percent respectively.
Johnson Matthey (>> Johnson Matthey PLC) fell as much as 8.4 percent before paring most of its losses with some traders blaming the drop on a possible "fat finger" error.
On the upside, home improvement retailer Kingfisher (>> Kingfisher) rose 2 percent following an upgrade to buy from Goldman Sachs, which said the market was too cautious on its "One Kingfisher" efficiency program.
BP (>> BP) rose 0.7 percent as the oil major found support in higher crude prices, which rose on expectations that an OPEC-led output cut due to expire next March would be extended.
BP releases its quarterly results on Tuesday.
Elsewhere among commodity stocks, Glencore (>> Glencore) inched up 0.8 percent. The miner increased its full-year marketing guidance for earnings before interest and tax to between $2.6-2.8 billion from $2.4-2.7 billion.
Among mid-caps, top gainer was Genus (>> Genus plc), which shot up 8.7 percent to a record high after an upgrade to buy from UK broker N+1 Singer.
The mid-caps index <.FTMC> added up 0.3 percent.
(This version of the story refiles to remove HOLD from headline).
(Reporting by Danilo Masoni; Editing by Mark Heinrich and Ken Ferris)
By Danilo Masoni
Stocks treated in this article : Diageo
, British American Tobacco
, Taylor Wimpey
, Drax Group Plc
, Barratt Developments
, Redrow plc
, Genus plc
, HSBC Holdings
, Johnson Matthey PLC