London rally comes to an end after poor US opening

The Footsie was up more than 1 per cent at one point as Friday's 3 per cent fall on European growth and sovereign debt fears tempted investors back into the fray.

But the blue-chip index lost momentum late in the session to close 0.31 points down at 5262.54 after Wall Street's Dow Jones Industrial Average was dented by disappointing manufacturing data.

US analysts said worries persist about the euro-zone debt crisis, which they said threatens to hurt the global economic recovery. Adding to those fears, a Chinese leading indicator showed growth may have already peaked in its economy.

The New York Federal Reserve's index of manufacturing activity in New York State continued to grow in May, but at a slower pace and came in far below forecasts.

Shares of manufacturers tumbled, with Caterpillar, down 2.5 per cent at $63.23 and ranking among the heaviest weights on the Dow.

Currency markets were also in focus as the euro traded near four-year lows against the dollar – below 1.23 at one stage amid fears that measures to tackle deficits will kill off growth.

The pound also touched a year-low of 1.42 against the greenback at one stage, although it later strengthened to 1.44 as traders weighed up Chancellor George Osborne's independent fiscal watchdog to look into the Treasury books.

Ministers claimed they had found 'black holes' in the budgets left behind by the outgoing Labour administration.

A clutch of miners featured among the early risers, but the heavyweight sector failed to hang onto gains and dragged the index down.

Oil major BP was another stock which lost ground, finishing 1/4p down at 5297/8p after initially advancing when it said it had succeeded in capturing some of the oil and gas that is spilling into the Gulf of Mexico. Royal Dutch Shell edged 5p higher to 17841/2p, but crude prices at a three-month low of 71 dollars a barrel also weighed heavily on the sector.

Insurer Prudential, which finally launched its 14.5bn rights issue to fund the acquisition of AIA yesterday, was down 8p to 5341/2p and Standard Life slipped 3p to 1871/4p.

Man Group was the biggest faller in the top flight after it said it would pay 1.6 billion US dollars for rival GLG Partners. Concerns over the price of the deal meant shares dropped 9 per cent, or 195/8p to 2017/8p.

British Airways – due to unveil record annual losses of around 600m this week – was another casualty as shares fell 23/8p to 2001/2p.

Rival airline easyJet was the biggest faller in the FTSE 250 Index after the low-cost carrier suffered more disruption due to the volcanic ash cloud and founder Sir Stelios Haji-Ioannou quit the board as part of his campaign to bring about a change of strategy at the company. Shares slumped 243/4p to 391p, or 6 per cent.

Outsourcing firm MITIE was heading the other way in the second tier after better than expected pre-tax profits of 91.7m and an "unprecedented" bid pipeline.

The stock was 81/4p higher at 2381/4p, or 4 per cent.

The biggest Footsie risers of the session were Standard Chartered up 69p to 1691p, Experian ahead 151/2p to 591p, ARM Holdings up 61/4p to 2473/4p, and Cable & Wireless which ended the day ahead 17/8p to 837/8p.

The biggest fallers of the day were Man Group, Thomas Cook declining 71/4p to 2173/4p, Aviva down 97/8p to 317p and Rio Tinto, which finished the session off 951/2p to stand at 31141/2p.