The FTSE 100 Index shed more than 2 per cent on Monday on falling commodity prices, but early gains fizzled out to leave the benchmark index just 2.56 points higher at 4328.57.

Despite a "solid" first quarter performance from supermarket giant Tesco and better than expected US housing figures, further weakness in the mining sector hampered progress.

The US Commerce Department said housing starts jumped 17.2 per cent, the biggest rise in three months, to an annual rate of 532,000 units. Multi-family homes surged 61.7 per cent after diving 49.4 per cent in April.

Even more encouraging for the housing sector, which is at the centre of the longest US output decline since the Great Depression, new single family starts rose 7.5 per cent, the largest gain since January 2006.

Investors are still nervous over the sustainability of recent share recoveries, while economic data raised possible inflation concerns after a lower than expected drop in the Consumer Prices Index to 2.2 per cent in May.

Among the Footsie risers, Tesco was helped by underlying like-for-like sales growth of 4.3 per cent in the 13 weeks to May 30.

The figure was in line with recent trends and resulted in shares climbing 51/2p to 3615/8p, a gain of more than 1 per cent. Rival Sainsbury's, which is due to issue a trading update today, was 31/2p higher at 3313/4p.

The biggest rise of the session came from BT Group after Morgan Stanley became the latest broker to speculate about an upturn in the company's fortunes following the crisis at its global services arm. Shares, which recently hit a record low, were 75/8p higher at 1021/2p, a gain of 8 per cent.

Banks were also on the risers' board, with Lloyds Banking Group continuing gains seen on Monday as it rose another 3 per cent, or 21/2p, to 691/4p.

But elsewhere in the banking sector, Barclays lost 13/4p to 277p despite Shore Capital upgrading the firm to buy.

Shore believes the sale of its fund management arm and an improving economy will mean the bank is unlikely to need further emergency funds. The broker kept Lloyds and RBS – 1/4p up at 381/8p – on hold.

A number of miners began on the front foot after their battering on Monday, although many finished the session on the fallers' board.

The declines were led by Rio Tinto, which declined by 71p to 2829p.

Whitbread shares were 3p lower at 8471/2p after it reported a deeper fall in like-for-like sales at its Premier Inn hotel business.

The decline of 7.9 per cent in the first quarter was offset by strong trading at Costa Coffee and a market-beating performance for its Beefeater pub restaurants.

Elsewhere, fashion chain Ted Baker fell 51/2p to 370p as it reported a worsening performance from its wholesale arm.

However, its core retail arm has been faring better and it confirmed confidence of meeting full-year market forecasts.

Blue-chip rival Next was unchanged at 1489p in an otherwise steady session for the retail sector. Argos owner Home Retail Group moved 41/4p higher to stand at 262p.

The four biggest Footsie risers of the day were BT, Man Group ahead 113/4p to 2861/4p, Lloyds, and National Grid ahead by 171/2p to 5441/2p.

The biggest Footsie fallers of the session were Rio Tinto, BG Group off 24p to 1076p, Smith & Nephew down 91/2p to 4521/2p, and Amec 14p lower at 668p.