Britain's top share index reversed early gains to finish lower on Friday as interest rate fears gripped Wall Street and spread to Europe, but heavyweight oil stocks such as BP lent a prop.
Mergers and acquisitions activity also supported the FTSE 100 with chemicals group ICI up on bid talk, but investors hoping for a knock-out offer for airports operator BAA were slightly disappointed, traders said.
"US payroll data came in better than expected and this has reignited some of the earlier inflationary concerns, compounded by some overly upbeat comments on the US economy from President Bush," said Geoff Langham, head of trading at CMC Markets.
"Unsurprisingly, this is now weighing on stocks on both sides of the Atlantic, whilst the prospect of some end-of-week profit taking also seems to be emerging in London."
The FTSE had been on course for its best weekly gain in more than two months before the US-inspired slide.
The index of Britain's biggest shares closed down 19.6 points, or 0.3 percent, at 6,026.1 points - still 1 percent higher for the week and holding near five-year highs.
"The spanner in the works could be the bond market outlook," said Mike Lenhoff, chief strategist at Brewin Dolphin.
"My worry would be if the US Treasury yield goes up to 5 percent and beyond," he said. "If it continues to rise then I am going to feel most uncomfortable if the (stock) market continues to rise because we are into high risk territory."
Yields on benchmark 10-year US notes rose to 4.95 percent - their highest level since June 2002 after the US jobs data.
Mining stocks fell heavily in the UK, taking almost 12 points off the index, as metals prices dipped, with Kazakhmys and Xstrata shedding more than 4 percent each.
"The market is quite nervous because we are so high, so it is obviously going to fall quicker than it rises," a trader said.
BAA rejected a hostile bid from Spanish construction company Ferrovial worth 810 pence per share, or 8.75 billion pounds. Shares in the company, which runs London's Heathrow and Gatwick airports, finished 1.5 percent higher.
"I imagine this is an opening gambit," said one dealer. "(But) people probably expected that when they came in with a firm bid it would be a bit higher."
Shares in Britain's third-biggest bank Barclays rose 2.2 percent to top the FTSE leaderboard as dealers pointed to talk a US group might be interested in the company. No names were mentioned, and Barclays declined to comment.
Bid talk also boosted chemicals group ICI, up 1.2 percent. Most dealers reported vague bid talk, although one singled out US company DuPont as a possible suitor. Hopes of a DuPont offer for ICI also swirled through trading rooms at the end of March.
Energy stocks provided the bulk of support to the FTSE, with BG Group, Royal Dutch Shell and BP all rising after UBS upgraded the sector.
"Since there are few signs so far that high oil prices are slowing the global economy, we expect the oil price to remain high," analysts said in a research note, though they urged caution on utility stocks.
"In our view, valuations are expensive, almost all potential M&A across the sector has been mooted already, and rising bond yields are likely to prove the catalyst for underperformance."
Back on the downside, mid-cap healthcare software developer iSoft fell a further 14 percent on top of Thursday's 11 percent drop. Jitters remain after speculation about its financial standing, which the company said was unfounded.
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