The blue chip FTSE 100 <.FTSE> was down 0.9 percent at 7,337.43 points at its close, in line with a broader slide among European shares.

Early on Tuesday, North Korea fired a ballistic missile over Japan's northern Hokkaido island into the sea, shaking global markets.

"The race to the safe havens has seen the dollar ditched, which is resulting in some fresh and unwelcome sterling and euro strength," Mike van Dulken, head of research at Accendo Markets, said.

"The banks, the miners, are the first to succumb to risk aversion, and those with fx exposure, be it via their activities or, as can often be the case, their dividends can be worth less if they're paid in foreign currency," van Dulken added.

Financials were the biggest weight on the index, with the sector wiping more than 22 points off the index. Lenders Lloyds (>> Lloyds Banking Group), Barclays (>> Barclays) and Standard Chartered (>> Standard Chartered) all fell between 1.2 and 2 percent.

In the energy sector, heavyweights BP (>> BP) and Royal Dutch Shell were both down around 1 percent.

Likewise large consumer staples firms such as British American Tobacco (>> British American Tobacco) and Diageo (>> Diageo) also added pressure.

Building materials firm CRH was among the biggest fallers, down 2.7 percent following a target price downgrade from Investec, who remained positive on the stocks despite FX and higher energy costs.

ITV (>> ITV) dropped 4.9 percent, tracking broader losses among European media stocks <.SXMP> after German peer ProSiebenSat.1 (>> Prosiebensat 1 Media SE) slumped on the back of a weaker outlook for advertising in the third quarter.

Precious metals miners were a bright spot, however, with Randgold Resources (>> Randgold Resources) and Fresnillo (>> Fresnillo) up 4.6 percent and 2.6 percent as gold prices rose to their highest since November on the back of demand for safe-haven assets. [GOL]

Mid cap precious metals miners Hochschild (>> Hochschild Mining Plc) and Acacia Mining (>> Acacia Mining PLC) were also in demand, rising 7.3 percent and 7 percent respectively.

(Reporting by Kit Rees; Editing by Janet Lawrence)

By Kit Rees