Roberto Di Matteo admitted that Chelsea's Champions League defence hung in the balance after the 2-1 defeat here by Shakhtar Donetsk and it would surely be over if they failed to win both their remaining Group E ties at home.

On the night that John Terry returned to the team as the captain, with his Football Association suspension for racist abuse not applying in Europe, Chelsea made errors and they were outplayed by their vibrant hosts.

Terry was one of Chelsea's better players but Di Matteo was left to bemoan an unlucky break off the defender's arm that sported the captain's armband, with an anti-racism slogan on it, which led to Alex Teixeira's opening goal. The decisive second from the outstanding Fernandinho followed the substitute Eden Hazard losing possession in a dangerous area.

Attention will turn to Chelsea's Premier League fixture against Manchester United at Stamford Bridge on Sunday but in terms of the Champions League campaign, the home matches against Shakhtar and Nordsjaelland have assumed huge importance. They come either side of the trip to Juventus. The only consolation on a dispiriting evening was the Italians merely drawing 1-1 against Nordsjaelland in Denmark.

"We absolutely need to win our remaining home games," Di Matteo said. "The consolation was tonight's draw in Copenhagen and it just shows what a difficult competition this is but, certainly, we have to win our game against Shakhtar [on 7 November].

"They were a little lucky with the ricochet [off Terry] for the first goal and on the second we got caught in possession and they punished us on the break. We have to do better in those situations as a team. Shakhtar are a very good side with a good track record against English teams.

"The early goal helped them massively. It unsettled us. We started to get into our rhythm and I was always confident we would score a goal, at least. We were controlling the game more in the second half but we got caught in possession and they punished us. Chasing two goals, the game became very open."

Di Matteo was forced to defend a dismal performance from the striker Fernando Torres while Frank Lampard, on his 100th European appearance for the club, was forced off with a serious-looking calf strain that will require a scan. Di Matteo said it was a recurrence of the problem that he suffered against Norwich City at the beginning of the month. Terry's performance, though, did permit Di Matteo to enter into a little praise.

"I thought the players were very committed and JT played a good game," Di Matteo said. "As a team, we can play better but I have no concerns about how we played the game. I wouldn't say it's a question of confidence [with Torres]. He worked hard for the team. Our job is to help the striker. We didn't create as many chances as we'd have liked. With Lampard, we'll have to wait for a scan. He was fine and had been training with us. There were no alarm bells after the last game [against Tottenham]. He was in good shape to play."

Di Matteo's challenge is to raise the spirits ahead of the United game and ensure the slump Chelsea have endured around this time in the past two seasons does not recur. "We are a team that has previously shown character after a defeat," Di Matteo said. "Previous years should not affect the way we are playing this season. I'm confident it will be a different game at home [against United]. We are very hard to beat at home."

The defender David Luiz said: "I am shocked by the performance. We did not play well but now, we just think of the next game."

The Shakhtar manager, Mircea Lucescu said: "Chelsea were more defensive than they have been in the Premier League. But we overcame them. We wanted to outplay them and we have. Chelsea are one of the most beautiful teams but we were sure we would win and we were more technical. We deserved this victory."