The FTSE 100 had erased gains by lunchtime after a strong start, as investors took caution ahead of the pivotal Budget Statement this afternoon by UK Chancellor George Osborne.
Sentiment was still fragile after the Cypriot parliament last night voted to reject a €10bn bailout deal that included a tax on bank accounts, though this outcome was widely expected. Cyprus is now said to looking to Russia to provide extra financial assistance.
Traders also had to digest the minutes of the latest Monetary Policy Commitee (MPC) meeting which showed that the vote over quantitative easing (QE) was still split, with members voting six-to-three in favour of keeping the asset purchase programme at £375bn.
While a close eye will kept on developments in Cyprus, the main focus for the markets today will be the Budget announcement by Osborne which begins at 12:30.
Several details have emerged so far, including plans to cut spending across governmental departments by a collective £2.5bn over the next two years. Meanwhile, it is rumoured that Osborne will also bring forward an increase in the tax-free allowance and push back a rise in fuel duty to help low- and middle-income earners.
Analysts from Barclays Research said this morning that they don't expect "any sizeable new fiscal measures". However, they predict that borrowing for 2013 to be revised upwards by around £7.0bn to £88bn, "largely reflecting unexpected cyclical weakness".
Cyprus looks to Russia after bank levy rejected
Last night's vote in Cyprus - which saw a unanimous rejection of the proposal - was widely expected to fail given the public backlash of the last few days over the plan to raise €5.8bn from a one-off levy.
While international lenders have reiterated their commitment to providing aid, Cyprus will have to come up with a 'plan B' to raise the extra funds. The Troika is unwilling to increase the size of the bailout beyond €10bn because the debt would become unmanageable for the country.
Cyprus is now seeking extra financial assistance from Russia, with the country's Finance Minister Michael Sarris flying to Moscow, possibly in exchange for gas exploration rights. President Nicos Anastasiades is said to have had a half-hour phone conversation with Russian Premier Vladimir Putin that was "fruitful and constructive", according to a government spokesman.
"The problem now facing Cyprus is the fact that, even if a deal with Russia is done, we'll probably still see run on Cypriot banks with savers fearing that their money is no longer safe," said Market Analyst Craig Erlam from Alpari.
"The only chance that Cypriot banks now have of not collapsing is if the government imposes capital controls to stop the flight of money out of the country's banks."
ENRC slips after falling into the red in 2012
ENRC labelled 2012 as a "challenging year" as a swing into the red led to the miner scrapping its final dividend. The resources giant recorded a loss before tax of $550m, down from a profit of $2.76bn the year before, as it took impairment charges and an onerous contract provision totalling $1.54bn.
Other miners, including Anglo American and BHP Billiton were also firmly out of favour this morning.
Smiths Group, the diversified industrial firm, slipped despite rewarding shareholders with a 6.0% increase in the dividend after posting a rise in half-year revenue and profit.
Oil and gas services company Wood Group also rose after saying it has won 11 new contracts in Africa worth a combined $240m.
Bakery and hot snacks retailer Greggs slumped after serving up a mixed bag of results for 2012: full-year sales rose 4.8% while but profits slipped 2.2%.
FTSE 100 - Risers
RSA Insurance Group (RSA) 117.60p +1.99%
Royal Bank of Scotland Group (RBS) 299.20p +1.91%
BT Group (BT.A) 273.40p +1.30%
Rolls-Royce Holdings (RR.) 1,122.00p +1.17%
Schroders (SDR) 2,121.00p +1.10%
Resolution Ltd. (RSL) 270.70p +0.97%
Wolseley (WOS) 3,333.00p +0.94%
Johnson Matthey (JMAT) 2,310.00p +0.92%
Sainsbury (J) (SBRY) 374.70p +0.89%
Aggreko (AGK) 1,965.00p +0.77%
FTSE 100 - Fallers
Evraz (EVR) 224.70p -3.73%
Eurasian Natural Resources Corp. (ENRC) 301.60p -3.55%
Aviva (AV.) 314.10p -2.82%
Anglo American (AAL) 1,780.00p -2.20%
Weir Group (WEIR) 2,282.00p -1.85%
Marks & Spencer Group (MKS) 391.80p -1.58%
BHP Billiton (BLT) 1,954.00p -1.39%
InterContinental Hotels Group (IHG) 1,973.00p -1.25%
Pearson (PSON) 1,177.00p -1.18%
Centrica (CNA) 350.80p -1.18%
FTSE 250 - Risers
Ocado Group (OCDO) 159.90p +4.31%
Carpetright (CPR) 696.00p +2.43%
Elementis (ELM) 270.90p +2.27%
Betfair Group (BET) 710.50p +2.16%
Home Retail Group (HOME) 158.00p +2.00%
CSR (CSR) 478.50p +1.74%
Barratt Developments (BDEV) 243.50p +1.54%
Bank of Georgia Holdings (BGEO) 1,475.00p +1.51%
Perform Group (PER) 511.50p +1.49%
De La Rue (DLAR) 960.50p +1.43%
FTSE 250 - Fallers
Lancashire Holdings (LRE) 832.50p -8.42%
Greggs (GRG) 491.30p -6.15%
Lonmin (LMI) 298.70p -4.20%
Petropavlovsk (POG) 236.80p -4.01%
SEGRO (SGRO) 254.00p -3.97%
Ferrexpo (FXPO) 174.60p -3.85%
Moneysupermarket.com Group (MONY) 189.80p -3.41%
Close Brothers Group (CBG) 1,067.00p -2.82%
Ladbrokes (LAD) 224.90p -2.81%
Go-Ahead Group (GOG) 1,476.00p -2.25%