Britain's leading shares ended lower on Monday as M&A activity featured but jitters over the global economy weighed ahead of the Bank of England (BoE) rate-fixing meeting later this week.
The FTSE 100 ended 3.0 points or 0.1 percent lower at 6,026.2, after suffering a midsession setback as fears over the state of the US economy were heightened by data showing new factory orders rose less than expected in December.
"The recession fears are always going to be there," said Joshua Raymond, a sales trader at City Index. "A lot of clients I've spoken to are pretty convinced that there are two different stories going on: the US and European one.
"The sense is that the European economy is a lot stronger than the US and therefore there is a chance that they could withstand it, but at the moment ... the spill-off into Europe (equities) has been a lot stronger and potentially overdone."
Banks, which have recently picked themselves up from taking a beating in January, accounted for 15 positive index points. High climbers included HBOS, Lloyds TSB and Barclays, all up by more than 1 percent.
But Royal Bank of Scotland surged 4.3 percent to top gainers, after a weekend report that the bank could sell assets including its minority stake in Bank of China if a deepening crisis on the market forces it to raise fresh capital, analysts said.
In other banking news, Northern Rock reversed earlier gains to fall 0.5 percent after investment firm Olivant quit the race to rescue the ailing British bank. Olivant's withdrawal leaves billionaire Richard Branson's Virgin Group and an "in-house" management team as the only possible suitors, ahead of today's government set deadline.
After the market's close, the Virgin consortium announced its proposals for the troubled lender. See. On the economic front, the BoE is due to announce its February interest rate verdict on Thursday, following a two-day meeting. A Reuters survey of economists conducted on January 29 to 31 found all 60 expect the BoE to cut rates by a quarter of a percentage point to 5.25 percent.
In commodities, Anglo American reversed earlier highs to end up 1.2 percent after saying it had sealed an agreement with the China Development Bank to develop a range of mining projects.
BHP Billiton added 1.7 percent but Rio Tinto lost 1.3 percent. Aluminium Corp of China (Chinalco) sought to douse speculation it was preparing to mount a rival bid to BHP's for Rio, saying it was happy to stick with the $14 billion stake it bought last week.
Analysts meanwhile said China, seeking to cool a merger frenzy in the mining sector, may buy a major stake in Xstrata after Friday's purchase of a 9 percent holding in rival Rio. Xstrata was 2.7 percent lower.
In other M&A news, Punch Taverns fell 6.5 percent after saying it had put forward a blueprint for a possible merger with troubled rival Mitchells & Butlers, up 3.6 percent. See Shares in Friends Provident rose 3.5 percent on fresh reports of a take-over bid from private equity suitor JC Flowers, but a source close to the situation said on Monday a move was not imminent.
On the downside, shares in retailer Carphone Warehouse shed 7.3 percent on fears of BT Group's results, due on Thursday, would show BT taking market share from the mobile phone retailer.
Subsiding M&A talk also hit the company after a boost last week from rumours of a possible take-over bid from US group Best Buy. Consumer products company Unilever fell 2.4 percent after Panmure cut its rating on the stock to "hold" from "buy". Credit Suisse reiterated an "underperform" rating on the shares, cutting its price target and adding that there are better opportunities elsewhere in the sector.
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