By Sarah Turner

LONDON (Dow Jones)--Shares of Barclays fell notably for a second day on Wednesday in London, with a weaker banking sector contributing to losses for the top index.

Barclays (BCS) closed with a 5% decline, extending sharp losses made in the previous session when Abu Dhabi's International Petroleum Investment Co. offloaded around 1.3 billion shares of the bank.

On Tuesday, analysts at Societe Generale said that they believe a long-term investor divesting a large part of its potential holding seven months after buying into the firm wasn't a positive sign about its health.

"We continue to be concerned about the robustness of Barclays' balance sheet," the analysts said in a note.

However, Credit Suisse analysts said Wednesday that the move has little effect on its fundamental view of the company.

"Given the relative valuation at 1 times 2009 estimated tangible net asset value, we continue to advocate Barclays versus the other U.K. banks despite recent outperformance," they said.

They are also "not overly concerned" about the risk of further share sales.

"The IPIC holding was the biggest single block of shares held in the company and Qatar, IPIC and Challenger now hold 'only' 10%," the analysts said.

The banking sector has led a rally for the broader market since early March and Lloyds Banking Group (LYG) shares fell 5% and HSBC Holdings (HBC) shares fell 1% on Wednesday.

The U.K. FTSE 100 index ended the session down 2.1% at 4,383.42.

There wasn't much reaction to news that the May PMI services index rose to 51.7 from 48.7 in April, the first time the index has expanded in more than a year.

"Whilst the green shoots have been very evident the economic desert from which they are springing cannot be forgotten," noted analysts at Arden Partners in a note to clients.

Oil producers ended lower as oil futures declined $1.98 to $66.54 a barrel after the release of weekly U.S. inventory data.

British oil major BP (BP) fell 2.2% while Anglo-Dutch Royal Dutch Shell (RDSA) lost 1.7%.

Metal extractors under pressure included BHP Billiton (BHP), down 4.1%, and Anglo American, down 6%.

Outside the top index, shares of London Stock Exchange rose 1.6% after Goldman Sachs upgraded the firm to buy from neutral.

The broker said investors have focused on the group's loss of market share to alternative trading platforms, but that this is likely to be mostly offset by growth in the total value traded.

"We expect factors such as the re-emergence of equity as the capital of choice, market-taker tariff structures, lower frictional clearing costs and a strengthening economic backdrop to drive sustained volume growth," the broker said.

De La Rue climbed 4.2% as Panmure Gordon upgraded the maker of Britain's money to buy from hold.

"The shares remain a safe haven in an uncertain world, and we remain concerned that second-quarter updates elsewhere during June may be more cautious than some investors expect."

Services Desk; Dow Jones Newswires; +44-20-7842-9319/9274