Britain's top shares eked out slim gains on Tuesday after recovering from a morning fall to six-week lows as Severn Trent and other utilities rose and benign US economic figures soothed concerns that policymakers will favour further interest rate rises. But mobile phone service provider O2, previously known as mmO2, dropped 4.9 percent after reiterating its forecasts for the year to the end of March, disappointing some investors who had hoped for an improvement in its home market.
Traded volume was a hefty 210 million O2 shares. "The results are in line. There's been a reaction because there have been upgrades the last three times the company has issued a pre-close statement and people haven't been given another opportunity to upgrade their numbers," said Sean Johnstone, telecoms analyst at WestLB.
The benchmark FTSE 100 share index closed up 3.8 points at 4,937.3, bouncing back from a morning fall to 4,908.5, its lowest point since February 4.
Dealers said investors were holding fire before the US Federal Reserve makes its latest rate decision at 1915 GMT. The Fed is widely expected to raise rates by 25 basis points, but concerns it may adopt a more aggressive stance on future moves were calmed by a 0.1 percent rise in the core US producer price index (PPI).
"Inflation data have driven sentiment recently so we've had a bit of relief from the PPI number, but you can't expect investors to be too aggressive until we've seen the Fed's language and whether there's a change in the tone," said Alex Scott, analyst at Seven Investment Management.
"It's still an environment where equities can make a certain amount of progress, although probably more difficult now than it was last year given higher bond yields and significantly higher oil prices. But the outlook for equities is reasonable," Scott added.
Mining stocks were unsettled as the prospect of a rate rise boosted the dollar and in turn weighed on metals prices to encourage investors to take profits after a strong recent run. But most stocks bounced off morning lows to leave Lonmin the worst performer with a 2.2 percent drop after it made a $190 million purchase to gain access to a key South African asset.
Fund managers and insurers also dipped, although utilities were led higher by a 2.2 percent gain by Severn Trent after J.P. Morgan raised its rating on the water firm to "overweight" and Williams de Broe upgraded it to "buy".
Dealers said a perception that utilities had been hit too hard by the impact of rising bond yields helped United Utilities, Scottish & Southern Energy and Scottish Power all rise over 1 percent.
British American Tobacco was another bright spot with a 1.3 percent gain, tracking a rise by its US peers on signs the industry is moving nearer settling a racketeering case with the US government.
Electrical and industrial parts firm Electrocomponents was the biggest mid-cap failure with a 12 percent tumble after warning that its profits will be slightly lower than last year's, which helped drag Premier Farnell down 1.4 percent and Invensys down 4.6 percent.
In contrast, no-frills airline easyJet flew 7.3 percent higher after saying it expected first-half operating margins to be broadly in line with last year, despite high and volatile fuel prices, soothing worries it could warn about tough trading.
Renewed speculation that property tycoon Robert Tchenguiz could bid for supermarket chain Somerfield propelled its shares to a 5-1/2 year high, ending up 3 percent.
A take-over battle for video game maker Eidos erupted after SCI Entertainment trumped an earlier agreed take-over of Eidos with a 76-million-pound ($144 million) counter-offer, sending shares in the UK firm soaring 28 percent.
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