The FTSE 100 <.FTSE> was down 1.1 percent at 7,092.43 points at its close, having earlier this week suffered its worst losses since the Brexit vote. The index was down around 9 percent from its record high hit on Jan 12.

The biggest question facing the market was whether the correction marked the start of a bear market.

"If we look at other indicators it doesn't look the case," said Rory McPherson, head of investment strategy at Psigma Investment Management in London.

"Interbank lending rates are still pretty low, credit spreads have moved up slightly from record lows but haven't blown out, and earnings season is coming along pretty well," McPherson said. Equity markets sold off because stocks were overbought and slightly over-valued, he said.

Energy and financials were the biggest weights on the index on Friday, knocking around 35 points off the index.

Investors said, however, domestic bank stocks would probably get support in the medium term from the Bank of England's saying on Thursday it would raise rates sooner and by more than it thought three months ago.

Chemicals firm Johnson Matthey (>> Johnson Matthey PLC) fell the most, 4.3 percent, after rival Umicore (>> Umicore) raised 892 million euros to fund capacity growth.

Merger and acquisition news shook up the small-cap market.

Trinity Mirror (>> Trinity Mirror plc) shares jumped 9.6 percent after the publisher of the Daily Mirror agreed to buy two rivals, the Daily Express and Daily Star.

Shares in British business travel company Hogg Robinson (>> Hogg Robinson Group plc) shot up nearly 49 percent, leading the small-cap index, after saying it got a takeover offer from American Express's (>> American Express Company) global business travel unit and had agreed to sell its payments technology business to Visa (>> Visa).

Materials stocks such as Fresnillo (>> Fresnillo) and Rio Tinto (>> Rio Tinto) gained ground and Direct Line (>> Direct Line Insurance Group PLC) jumped 2.7 percent after saying that 2017 profit would beat market expectations.

Valuations across European stocks and UK stocks fell after this week's losses. Volume has been heavy during the week, with some 1.4 billion UK shares trading on Tuesday, the most in nearly five months.

"The UK market trades on around 14 times next year's earnings, which is good value," McPherson said.

(Reporting by Helen Reid and Kit Rees, editing by Larry King)

By Helen Reid and Kit Rees