Britain's top share index closed flat on Wednesday, underperforming other European markets, as interest-rate worries dampened sentiment and retailers including Morrison and Tesco fell. The FTSE 100 index closed little changed at 6,649.3, with bid speculation in banks offset by the drop in retailers.
The index initially shrugged off minutes from the Bank of England which showed that Governor Mervyn King and three other policymakers opposed this month's decision to hold interest rates at 5.5 percent and called for a hike, boosting expectations that borrowing costs will rise next month.
But Wall Street's brief retreat from opening levels, triggered by a rise in bond yields, reminded investors that global interest rates were still expected to head higher. "You had an update from the MPC in terms of the voting on the last meeting which obviously implies that a further rate rise is ahead," said Philip Isherwood, strategist at Dresdner Kleinwort.
Take-over speculation helped financials. Lloyds TSB was up 0.4 percent on market talk that Societe Generale was eyeing the bank, while HSBC gained 0.9 percent as traders said the bank might bid for Greece's Alpha Bank.
Royal Bank of Scotland rose nearly 0.5 percent. A source told Reuters on Tuesday that Britain's second-largest bank is close to a deal to buy trading firm Sempra Commodities, owned by US-based Sempra Energy. Man Group was among top performers, rising 2.2 percent after the world's largest listed hedge-fund company reported a weekly 3.55 percent rise in net asset value of its flagship AHL fund.
But retailers struggled under the prospect of higher interest rates while recent disappointing news from the sector also weighed. Morrison Supermarkets was the biggest loser, down 2.8 percent, and Tesco fell 1.5 percent one day after it reported a slowdown in first-quarter sales growth.
Cadbury fell 1.7 percent a day after the world's largest confectionery group said it would cut jobs and close plants to match the profitability of its US rivals. Meanwhile J. Sainsbury reported slightly lower-than-expected first-quarter growth, becoming the second major British retailer in two days to warn of slower consumer spending. Its stock closed off the day's highs but eked out gains of 0.4 percent.
Also on the downside, DSG International, Europe's biggest specialist electrical goods retailer, lost 0.6 percent after saying it had decided not to enter the Russian market.