A partial recovery in banks and mining stocks offset weaker energy stocks to leave Britain's top share index flat in early trade on Monday as investors reassessed the implications of proposed curbs on banks from the White House.
By 0926 GMT, the FTSE 100 was up 5.50 points at 5,308.49 after it closed 0.6 percent lower on Friday weighed down by weakness in financial issues following President Barack Obama's proposals to limit the size and activities of U.S. lenders.
The White House's plans announced last week to curb risk-taking and the size of financial institutions caused a selloff in the market and knocked investor confidence about the prospects for the demand outlook.
This prompted the biggest weekly loss last week since May 2009 for the UK banking sector.
But investors decided that the extent of the sell-off may have gone too far as the proposals lack detail and may not as be as strict as initially feared.
"Markets overshoot on either positive or negative news and there's a long way to go for the (banking) legislation to go through," said Richard Hunter, head of equities at Hargreaves Lansdown.
"The market was pricing in a worst-case scenario and until we see the detail there's a feeling that the sell-off may be overdone."
Barclays, HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds Banking Group gained 0.5 to 3.5 percent.
Miners also managed to regain some ground after a sharp retreat last week as commodity prices stabilised.
Rio Tinto, Xstrata, Lonmin, Anglo American, Kazakhmys and BHP Billiton gained 0.5-1.1 percent.
SLIPPERY OILS
But confidence on the demand outlook was still fragile and energy stocks took the most points off the index as crude held below $75 per barrel.
BG Group, BP, Royal Dutch Shell and Tullow Oil fell 0.1 to 0.4 percent.
Pharmaceuticals, which fared relatively well last week, lost ground. AstraZeneca, GlaxoSmithKline and Shire fell 0.6 and 1.1 percent.
The UK benchmark is down 2 percent this year after it gained 22 percent in 2009.
"There are concerns about corporate profitability and that valuations are full," said Jeremy Batstone-Carr, head of research at Charles Stanley. "There was some irrational exuberance in 2009 and we're paying the price now as markets rebalance to a level that's more appropriate to reflect the uncertainty."
U.S. stocks posted their worst three-day slide in 10 months on Friday on fears the White House's proposed clampdown on banks would cut profits, and with a drop in tech shares after Google's results disappointed.
Asian stocks fell on Monday in reaction to the Wall Street drop, but losses were more muted, and high-yielding currencies edged up.
No domestic economic data is due for release on Monday, so investors' main focus will be on Tuesday's final, preliminary reading for fourth-quarter UK GDP which is expected to be revised up to show the ending of the worst downturn in Britain since the Second World War.
