The top share index was flat at midday on Monday, as investors absorbed S&P's credit ratings downgrades of nine euro zone countries, including France, with banks weighing on the index and defensives preventing further falls.
London's blue-chip index <.FTSE> was down 0.48 points at 5,636.16 by 11:55 p.m., in choppy trade, but having dropped on Friday on trader talk of the impending downgrades.
Volumes were thin again on Monday as most fund managers and institutions choose to park their cash on the sidelines with so much uncertainty surrounding the economic outlook.
Over the weekend, Standard & Poor's downgrades included stripping France and Austria of their coveted triple-A status but importantly not EU paymaster Germany.
The S&P downgrades last week show that optimism about Europe has lasted as long as most New Years' resolutions, David Miller, Partner at Cheviot Asset Management, which has assets of 3.5 billion pounds.
However, the markets have been expecting downgrades and so I wouldn't expect investors' decisions to alter much because of them.
The downgrades came as negotiations to thwart a Greece default broke up, but Greek Prime Minister Lucas Papademos on Monday was quick to calm market nerves promising a debt swap would be clinched in time.
With euro zone concerns back to the fore, banks <.FTNMX8350>, because of their exposure to debt in the region and its impact on their balance sheet and earnings ability, were under pressure.
Lloyds Banking Group
Espirito Santo said despite the sector's cheapness -- the European banking index <.SX7E> trades at 0.6 times tangible net asset value -- and central banks flooding the market with cheap cash, it is too early to be outright bulls on the sector.
Biggest loser on the FTSE 100 was Carnival
Morgan Stanley analysts, which downgraded Carnival, said the accident could have a bigger impact on the company than just the hit to annual earnings.
Broker downgrades hit outsourcer Capita
Earnings worries hit Inmarsat
On the upside, defensives featured prominently as doubts over the economic outlook persisted.
Sweetener and starches maker Tate & Lyle
UBS upped its target price to 1,300 pence from 1,200 pence and repeated its buy rating.
U.S. equity markets will be closed on Monday due to a holiday.
(Writing by David Brett; Editing by Mike Nesbit)