The FTSE 100 index closed flat yesterday - with higher oil prices boosting heavyweight oil firms but weighing on broader investor confidence, although bid speculation spurred airports operator BAA to a fresh record high.
BAA ended 2.5 per cent stronger, having earlier hit a 934 pence peak, as expectations grew that a revised bid was imminent from a consortium led by Spain's Grupo Ferrovial or that Goldman Sachs would lead a formal approach for the firm.
"The board confirms it is holding discussions with the Ferrovial consortium and is also currently in talks with another party," the company said in a statement.
The FTSE 100 closed 2.5 points lower at 5,762.1 points, having flipped between positive and negative territory during the session.
Analysts say the index is looking to recover some of the momentum that drove it to five-year highs above 6,100 points in April before tumbling ten per cent in May as commodity prices fell and concerns about US interest rates and inflation escalated.
"Neither of those concerns have been solved yet so those worries are still hanging over the market," said Richard Hunter, head of UK equities at Hargreaves Lansdown.
He said other supporting factors such as bid activity had also faded slightly from feverish levels witnessed earlier this year.
Hunter added: "The fundamental picture has not changed but it takes a great deal of time to build up confidence.
"It takes a brave person to catch a falling knife."
Heavyweight oil firms such as Royal Dutch Shell contributed about six points to FTSE upside after US crude oil prices rose towards $73 as tensions grew over Iran's nuclear standoff with the West.
On the downside, higher oil prices weighed on companies that consume a lot of fuel such as British Airways.
Its shares slipped 2.1 per cent despite reporting a rise in May passenger traffic.
"Market conditions remain broadly unchanged as significant promotional activity is required to maintain seat factors," the company said in a statement.
Banks such as Northern Rock also weighed on the FTSE, made jittery by concerns over interest-rate hikes in Europe and the UK.
The European Central Bank is widely tipped to hike rates by at least 25 basis points and possibly as much as 50 basis points.
While the Bank of England is expected to leave rates on hold, market watchers believe there is growing upward pressure on UK rates which could trigger bad-debt problems for banks and deter consumer borrowing.
Online gaming firm PartyGaming fell hardest, down 3.7 per cent.
Drinks company Diageo gained one per cent after investment bank Merrill Lynch raised its recommendation to "buy" from "neutral".