City slips as BP clean-up costs continue to increase

Early progress for London's blue-chip index was eroded as the day wore on, leaving the Footsie 6.74 points lower at 5188.43 after one of its strongest sessions of the year on Thursday.

Analysts warned the European debt fears that have rocked markets in recent weeks were still in the minds of investors.

However, there was a vote of confidence from leading broker Morgan Stanley, which raised its year-end target for the Footsie to 5800 from 5000.

There was also a boost from an improved Libor rate – the indication of the interest rate that banks must pay to borrow from each other – after a fortnight of consistent increases.

IG trader Yusuf Heusen said: "We have seen markets pull themselves back from the brink over the last five days but beaten-up investors will be looking for more reassurance that this has not been just a pause before the next lurch downwards."

America's Dow Jones Industrial Average was in negative territory by the time of London's close following mixed reports on the US economy.

Figures showed consumer spending was stagnant in April while incomes posted a tiny advance, offering signs that the economic recovery could slow.

The Commerce Department data was boosted by a combination of an

improving labour market and tame inflation.

Markets had expected consumer spending, which normally accounts for over two-thirds of US economic activity, to increase 0.3 per cent after a 0.6 per cent rise in March.

Separately, the Thomson Reuters/University of Michigan's index of consumer confidence edged up to 73.6 this month from 72.2 in April. Even more encouraging, measures of consumers' expectations and outlook of the economy over a 12-month horizon were the highest since January.

The dollar from maintained its recent strength against the pound. Sterling stood at 1.44 US dollars following a 0.5 per cent drop and was down by a similar level against the euro.

The major corporate news centred on BP and Prudential as the heavily-weighted pair grappled with high-profile difficulties.

Thursday's recovery for BP shares proved to be short-lived as the oil giant said the cost of the Gulf of Mexico oil spill now stood at 930 million dollars (640m) – up 170 million dollars (117m) in the past four days alone. Shares were down 5 per cent, or 26p to 4943/4p, after surging almost 6 per cent on Thursday.

Attention was also focused on Prudential after the insurer said it was in talks with AIG about renegotiating the terms of its takeover of the American insurer's Asian arm AIA.

Pru shares, which rose sharply at one stage on Thursday on speculation that it had pulled the 35 billion US dollars deal, fell 6p to 5411/2p.

Severn Trent finished the session at the top of the risers' board – up 3 per cent, or 39p to 1198p – after underlying profits of 557.1m for the year to March 31 came in ahead of market expectations. United Utilities followed with a rise of 15p to 5391/2p.

Retail shares were higher after an upgrade for Marks & Spencer by UBS lifted the stock by 83/4p to close at 3533/4p.

The big talking point in the FTSE 250 Index came from the building supplies sector after Travis Perkins announced it was on the brink of a deal worth 553m to buy plumbing specialist BSS. Travis shares were 451/2p higher at 7901/2p, while BSS rose 112p to 437p.

The biggest Footsie risers were Severn Trent, United Utilities,

Whitbread up 36p to 1385p, and M&S.