STOP USING H.264 MATERIAL IN FCP!
Convert the material to ProRes (ProResLT is fine for everything that comes out of consumer/prosumer cameras).
How are you viewing the material? If anything other than an external monitor, FCP is just showing you a proxy image.
If you are reducing the size of an image (number of pixels) the image will change.
thanks for the advice on ProRes conversion.
I'm viewing everything on built in display (iMac 27")
If I import the image, it's already resized to match my requirements in projects, but still major quality loss in occurring, when viewed in final cut (and when exported as well), same is with text when imported.
But the weird thing is that I don't have any record of happening this to me before, just in couple of last projects.
If you convert your H264 to a flavor of ProRes and edit in sequence that matches the clip settings you should not have any quality loss in FC(presuming playback settings are correct) or when you export.
Try a test
Start a new project
Add 1 min of the ProRes file to new sequence(unless you have changed a preference you should be asked if you want to change the sequence settings to match the clip setting) Choose yes.)
The sequence should now match the clip.
Export a self-contained QT(not Quicktime conversion)
In the lower left of the export window uncheck recompress all frames
The file exported should now be completely lossless and match your source PR file exactly.
How does it play in QT?