The FTSE 100 index was up a marginal 0.01 percent, paring gains as sterling climbed to a 6-1/2 month high versus the euro after the cabinet office minister said there could be a Brexit deal in the next 24-48 hours.
The buoyant pound meant the blue-chip index underperformed its European peers, with the leading euro zone stock index closing with a 1 percent gain.
More pressure could be on the cards on Wednesday as the pound extended those gains after trading closed on a report that British and European negotiators have agreed on a text that deals with the Irish border, a key issue in Brexit talks.
"Sterling is rallying on Tuesday afternoon as various reports emerge that Theresa May's end-game is in motion, with the cabinet due to meet on Wednesday to sign off on a Brexit deal," said Craig Erlam, a senior market analyst at Oanda in London.
The more domestically exposed FTSE 250, which tends to benefit from a stronger pound, rose 0.9 percent.
Vodafone shares rose 7.8 percent to the top of the FTSE 100 and their highest in a month after its new CEO Nick Read said he would reduce operating costs by 1.2 billion euros by 2021 and review its tower assets to drive higher returns.
The group showed it was operating generally in line with analysts forecasts and said it would freeze the dividend until it reduced its debt pile, easing worries over a possible cut. "The reason why the share price is up today is upgraded guidance for free cash flow... Essentially it is the pot of money that is used to pay back debt and pay the dividend," said Helal Miah, analyst at The Share Centre.
"Having a bigger pot of money raises hopes that the dividend isn't going to be cut."
Gains in banks also helped the FTSE 100 to eke out small gains, with shares in Barclays up 2.8 percent and HSBC up 1.5 percent.
Oil companies declined as crude prices fell sharply after US President Donald Trump put pressure on OPEC not to cut supply. BP was down 2.8 percent.
Elsewhere the focus was still on earning updates.
Credit data company Experian said it expected full-year organic revenue to come in at the top end of its previous forecast, driven mainly by strength in its North American business. That sent its shares up 4.5 percent.
Turnaround specialist Melrose rose more than 7 percent after it said trading was in line with 2018 expectations.
A rally in housebuilders on hopes of a Brexit deal helped Taylor Wimpey reverse early losses after a mixed trading statement. It closed 0.6 percent up while Barratt Development rose 4 percent and Berkeley Group 3.5 percent.
Among mid-caps, BTG gained 10.7 percent to its highest since May after the healthcare service provider announced better than expected revenue and a positive outlook.
FirstGroup jumped by 10.4 percent for its best day in almost a decade after the transport group appointed a new finance chief and posted first-half results boosted by strong demand for bus travel across the United States and Britain.
Mid-cap discounter B&M, meanwhile, tumbled 7.6 percent after underlying sales growth at its main B&M stores slowed in the second quarter.