What causes Daisy to become frightened, withdraw from the encounter, and lose any

courage she had possessed? Explain.

What prompted this reaction in Daisy was that she realized Tom's words, and that she could never leave her husband for Gatsby.

Explanation:

Daisy had a great love for Gatsby but the fact that Tom had singled him out as a common bootlegger made her realize the consequences this would bring.

She was actually scared by those words which caused her to stay with Tom even though she didn't love him.

All this happens in the discussion that Tom and Gatsby have where they fight for the love of Daisy, and that's where Tom reveals about the investigation he made about Gatsby and his drugstores, which leaves Daisy terrified, and realizes that Gatbsy couldn't win the confrontation.