The FTSE 100 share index rose slightly on Monday, supported by gains from defensive tobacco and pharmaceutical stocks as investors worried over regional instability in Asia following North Korean leader Kim Jong-il's death.
Investors were also unnerved by credit ratings agency Fitch saying over the weekend that it may downgrade France and six other euro zone countries as it viewed a comprehensive solution to the region's debt crisis to be technically and politically beyond reach.
The FTSE banking sector index <.FTNMX1770>, seen as a barometer of the broader economy, came under some pressure as the market considered the outlook for 2012 with a mixture of optimism and fear, after a year characterised by huge volatility triggered in part by concerns over the European debt crisis.
In addition finance minister George Osborne is due to give the government's formal response later on Monday to the proposals for reform of the banking sector made by the government-appointed Independent Commission on Banking in September.
Credit Suisse gave a cautiously optimistic view for markets and economies for 2012, focusing on quantitative easing heading off a deflationary outcome and a perception that tail risks were
We believe the political will, and a consciousness of the ultimate costs involved, will see the euro area crisis ultimately resolved. That is not to say this is a world in which to base stock selection on strong macro views, the bank said in a note.
As much as the exposure to event risk such an approach results in, sub-trend growth and severe constraints on the access to external capital suggests strong business models will prevail.
Meanwhile Henk Potts, market strategist at Barclays Wealth, said: The corporate picture still remains bright, U.S. growth is exciting, and emerging markets are still powering ahead, but there's still potential for further disruption caused by the European sovereign debt crisis that could certainly infringe upon financial markets' performance next year.
The FTSE 100 <.FTSE> was up 3.70 points, or 0.1 percent, at 5,391.04 by 1154 GMT, in choppy trade as low volumes exacerbated moves, with the index having traded only 22 percent of its 90-day average. The FTSE 100 fell 0.3 percent on Friday.
Atif Latif, director of equities and derivatives at Guardian Stockbrokers, said a breach below the important October support at 5,340 might further target 5,275 -- the December support.
He said that below 5,275, support is seen near the lower Bollinger band at 5,095.
Retailers braced themselves as the final festive trading week kicked off against a backdrop of harsh conditions on the high street, with consumers squeezed by debts and high prices.
Entertainment retailer HMV
On the upside, cruise ship operator was among the top blue-chip risers, firming 1.8 percent as Evolution Securities repeats its buy rating on the company ahead of its fourth-quarter results on Tuesday.
(With additional reporting by Jon Hopkins; Editing by Greg Mahlich)