Shares in easyJet (>> easyJet plc) dropped 5.3 percent after the carrier said it could not predict the outcome for the end of the year as growing security concerns, weaker consumer confidence and currency volatility hit the group during its most profitable peak summer period.

The sector also came under pressure after Lufthansa (>> Deutsche Lufthansa AG), Germany's largest airline, cut its full-year profit target saying advance bookings to Europe had fallen sharply due to "terrorist attacks in Europe and to greater political and economic uncertainty". Its shares slid 6 percent.

"The airline sector looks set for a pretty unpleasant ride in the short term, and investors might want to fasten their seat belts, because there could be turbulence ahead," Nicholas Hyett, equity analyst at Hargreaves Lansdown, said.

"The industry has been increasing capacity for some time and that is starting to have an effect on pricing, squeezing revenue per seat. Until now easyJet has been coping well, with rising passenger numbers offsetting lower revenues per seat. Capacity growth is continuing but the scale of yield declines is nonetheless starting to hit revenues."

Airline stocks, including a 3.6 percent drop in British Airways owner IAG (>> International Consolidated Airlns Grp SA), dragged the blue-chip FTSE 100 share index <.FTSE> to close 0.4 percent lower at 6,699.89 points.

However, the index is up 5.6 percent from a slump arising from Britain's June 23 vote to leave the European Union.

On the positive side, equipment rental company Ashtead (>> Ashtead Group plc) rose 5.1 percent, gathering strength from a surge in shares of U.S. peer United Rentals (>> United Rentals, Inc.) after it reported better than expected results overnight.

Among mid-caps, bookmaker William Hill (>> William Hill plc) rallied 10.6 percent, recovering its post-Brexit losses, after the company fired Chief Executive James Henderson because the bookmaker's board said he was failing to deliver enough growth in online and international gambling.

Shares in William Hill had fallen to a four-year low on June 24 immediately after the Brexit vote, and remain more than 20 percent down since its profit warning in March.

"We view the CEO departure as relatively unsurprising given pressures in the online business (company profit warning in March) and are encouraged that 2016 guidance is retained," analysts at Credit Suisse said in a note.

Online electricals retailer AO World (>> AO World PLC) jumped 9.8 percent after saying its full-year outlook was unchanged despite economic uncertainty following the Brexit vote and its potential effect on consumer confidence and suppliers' foreign exchange exposure.

"The company continues to grow its European proposition, with sales more than doubling during Q1 year-on-year," Shore Capital said in a note.

"Encouragingly for investors, the business is making advances in achieving a positive gross margin whilst also commencing trading from its new Bergheim logistics base."

(Reporting by Atul Prakash; editing by Mark Heinrich)

By Kit Rees and Atul Prakash