Deal news and an overnight rally in Asia helped the FTSE 100 garner support above the 5600 level during the early morning session.
Stock market confidence began to wane by mid-morning, however, as investors grew more cautious about the domestic economy following reports from the British Chamber of Commerce (BCC) and the Confederation of British Industry (CBI).
Over the weekend, the BCC revised its UK GDP growth forecast for 2011 to 2.1% from 2.3%, saying it expects net public sector debt to increase to 'dangerous levels' in excess of 80% of GDP. The BCC also claimed that the economic recovery could falter if banks and consumers continue to deleverage. Separately, the Confederation of British Industry (CBI) urged the government to deliver a 'convincing' plan to balance public finances by 2016, two years sooner than planned – will the UK be the next Greece?
Elsewhere, Bloomberg News has reported that state-owned holding company Dubai World is in talks with banks to delay loan repayments on the $26 billion debt it owes.
By around 10:30am (London time), the blue-chip FTSE 100 index had pared all of its earlier gains, falling 16.33 points (-0.29%) below its previous close at 5583.43. In addition, the broader FTSE 250 was 2.47 points (-0.03%) lower at 9772.25.
In today's deal news, Royal Dutch Shell and PetroChina have made an offer to buy Australia's Arrow Energy, the country's biggest holder of coal-seam gas acreage, for more than A$3.3 billion. Forth Ports rallied 23% to 1375p after announcing it had rejected a takeover bid from three companies.
Separately, American insurer AIG is said to be in talks to sell its foreign life insurance unit Alico to MetLife for around $15.5 billion ($6.8 billion in cash and $8.7 billion in equity). This deal could be formally announced later today.
Back home, insurer Prudential was up by 0.10% to 520.5p, after saying it plans to bring forward its share listing on the Hong Kong stock exchange. The company will now complete the move before it launches its $21 billion rights issue in May.
Meanwhile, oilfield services provider Petrofac rallied over 4% to 1116p, after unveiling a 33% surge in 2009 full-year net income, driven by a surge in oil and gas engineering projects.
In banking news, Royal Bank of Scotland (RBS) outperformed the sector, up 0.12% to 40.04p after announcing that it is in talks with a Chinese company to form an investment banking joint venture in the world's fastest-growing economy. Separately, the Independent on Sunday reported that RBS will end business with some small firms and cut its coverage of certain companies outside the FTSE 250 in favour of larger ones.
Shares of Barclays, HSBC, Lloyds and Standard Chartered lost between 0.1% and 1.5%.
