Britain's top share index fell 0.4 percent on Wednesday on concerns over the US economy after comments from Federal Reserve Chairman Ben Bernanke and heightening tension over Iran, but M&A and oil shares gave support.
Bernanke said uncertainty over the outlook for the US economy had increased somewhat, and the latest US durable goods data came in weaker than expected.
The FTSE 100 closed down 25.4 points 6,267.2. But it outperformed other major European markets as shares in index-heavyweight oil producers gained in step with crude prices, which climbed near to $65 a barrel. "The FTSE 100 can't seem to sustain itself in one direction or the other for very long. This is just the continuing uncertainty about the situation in the US," said Darren Winder, equity strategist at Cazenove.
Investors have been wary about the state of the world's largest economy because of problems in its subprime lending business and housing market. "The market is now sort of building up this view that US rates are to fall during the course of this year. We are inclined to think that this won't be the case, although the housing data is quite soft," Winder said, adding that US consumer spending remained solid.
Banks were the biggest losing sector on concerns over the US economy and its housing market as well as fresh worries on UK interest rates. Barclays fell 0.9 percent, HBOS shed 1.7 percent, HSBC lost 0.3 percent and Royal Bank of Scotland dipped 0.75 percent. Miners were also hit, with Kazakhmys down 1.4 percent, Anglo American slipping 1.4 percent as well and Rio Tinto losing nearly 2 percent.
Worries that tension between Western powers and Iran would lead to a full-scale conflict kept investors on tenterhooks, but boosted oil prices. "The only thing that is really holding up the UK today is the higher oil price," said Paul Webb, a trader at CMC Markets. Index heavyweights BP advanced 1.6 percent and Royal Dutch Shell climbed 0.8 percent, while BG Group notched up 1 percent.
"Obviously with what's going on in the Middle East, there is quite a bit of concern at the moment. In the equity markets, people are sitting on the sidelines," Webb said but added that M&A activity continued to help support the market.
Next rose more than 2 percent to hit an all-time high and top the gainers' list for the second session running, as traders cited bid talk at 2,500 pence per share. Next was not immediately available for comment.
And Drax gained 1.8 percent to a near three-month high on higher power prices and vague bid talk around the operator of Europe's biggest coal-fired power station, traders said. Drax declined to comment.
At the opposite end of the spectrum, Amvescap slumped 5 percent to top the FTSE 100 losers after the Wall Street Journal said Deutsche Bank had hired away 16 money managers from the UK-listed investment manager, traders said. Stocks going ex-dividend, which included Scottish & Newcastle, Wolseley and BSkyB, also featured on the FTSE 100 losers.