Markets paused at a two-week high on Monday as investors refrained from building as concerns over the US debt ceiling and mixed data from China weighed on risk appetite.
London's benchmark FTSE 100 was trading with small gains by midday after finishing Friday's session at 6,483.79, its highest close since September 27th.
US lawmakers held talks over the weekend but failed to agree over an increase in the debt ceiling ahead of the October 17th deadline as Republicans and Democrats remain divided over a number of issues.
Senate Majority Leader Harry Reid said that he had a "productive conversation" with Minority Leader Mitch McConnell but they did not agree on a proposal to send to the chamber for a vote. "I'm optimistic about the prospects for a positive conclusion," Reid said following the debate. More discussions are scheduled for later this evening.
Without a deal by Thursday, the world's largest economy will exhaust its borrowing limit and could default on its debt obligations.
"Clearly most investors believed that a deal would be agreed by now given the fact that the deadline is only a few days away," said Shavaz Dhalla, Financial Trader at Spreadex. "Thus, it seems analysts are now drawing up plans for what would happen to the world economy if the US was to default, instead of assuming the delay is a result of political point scoring."
A mixed batch of economic data from China was also in focus this morning. Trade figures showed an unexpected 0.3% year-on-year decline in exports in September as a result of weak global demand.
However imports jumped by 7.4% which, along with a pick-up in consumer price inflation to 3.1% in August, suggests that domestic demand is strengthening. Market Analyst Craig Erlam from Alpari said this is "is crucial for the country to successfully transform away from an export-led model to one more focused on consumer spending".
FTSE 100: Johnson Matthey jumps after upgrade
Chemicals group Johnson Matthey was performing well this morning after the stock was upgraded by JPMorgan Cazenove from 'neutral' to 'overweight'. The US bank hiked its target price for the shares
from 2,800p to 4,000p, saying that it sees "major potential from a swathe of new global industrial capex".
The same bank however was weighing on the share price of sector peer Croda after it downgraded its rating from 'overweight' to 'neutral', saying that expectations for the third quarter "look demanding".
Several other blue-chip stocks were hit with downgrades this morning, including SABMiller (Citigroup cut to 'neutral'), Bunzl (JPMorgan lowered to 'neutral') and Glencore Xstrata (Liberum Capital cut to 'hold'). Building materials firm Travis Perkins however was lifted to 'buy' by Bank of America.
RBS was trading lower after Bank of America Merrill Lynch downgraded the stock to 'underperform'. Banking peers Lloyds and Barclays were also in the red. Lloyds frontman António Horta-Osório was quoted by the Financial Times as saying that the government's 'Help to Buy' scheme could risk creating a housing bubble if steps to build new housing are not taken.
FTSE 250: Michael Page slumps on mixed Q3
Recruitment group Michael Page International fell sharply this morning after a mixed third quarter, as improved performances in the UK and US were counterbalanced by flat sales in Europe and declines in Asia Pacific. Gross profit increased by just 0.4% year-on-year at constant currency.
Plastic packaging company Essentra was heading the other way after saying it is on track to deliver profit growth this year on the back of a strong third quarter.
Elsewhere, Royal Mail continued to rise this morning, extending gains after Friday's stock-market debut led to a 38% surge in the share price. The successful initial public offering has fuelled the debate over whether the shares were underpriced by the government.
FTSE 100 - Risers
Johnson Matthey (JMAT) 2,931.00p +3.90%
Travis Perkins (TPK) 1,741.00p +3.75%
Mondi (MNDI) 1,079.00p +2.57%
Associated British Foods (ABF) 1,951.00p +2.09%
Resolution Ltd. (RSL) 329.90p +1.48%
Morrison (Wm) Supermarkets (MRW) 279.40p +1.38%
BG Group (BG.) 1,206.00p +1.30%
Smith & Nephew (SN.) 781.50p +1.30%
William Hill (WMH) 417.40p +1.26%
Smiths Group (SMIN) 1,396.00p +1.23%
FTSE 100 - Fallers
Royal Bank of Scotland Group (RBS) 370.70p -1.65%
Croda International (CRDA) 2,438.00p -1.57%
Bunzl (BNZL) 1,313.00p -1.57%
SABMiller (SAB) 2,970.00p -1.46%
Glencore Xstrata (GLEN) 331.10p -1.43%
Persimmon (PSN) 1,181.00p -1.34%
GKN (GKN) 357.80p -1.24%
Standard Chartered (STAN) 1,470.00p -1.18%
Aggreko (AGK) 1,460.00p -1.15%
Diageo (DGE) 1,951.00p -1.12%
FTSE 250 - Risers
Pace (PIC) 274.40p +4.73%
Wetherspoon (J.D.) (JDW) 739.50p +3.50%
Hochschild Mining (HOC) 158.00p +3.47%
Moneysupermarket.com Group (MONY) 146.70p +3.02%
Balfour Beatty (BBY) 275.50p +2.61%
Dairy Crest Group (DCG) 489.00p +2.41%
Marston's (MARS) 149.70p +2.04%
Dialight (DIA) 1,209.00p +2.03%
Crest Nicholson Holdings (CRST) 353.00p +2.02%
BH Global Ltd. USD Shares (BHGU) 11.73 +2.00%
FTSE 250 - Fallers
Michael Page International (MPI) 464.90p -5.99%
Chemring Group (CHG) 213.20p -3.09%
Soco International (SIA) 397.60p -2.24%
Xaar (XAR) 778.00p -2.20%
Savills (SVS) 608.50p -1.93%
Dixons Retail (DXNS) 45.57p -1.53%
Telecity Group (TCY) 792.00p -1.43%
Ashtead Group (AHT) 622.50p -1.27%
Polymetal International (POLY) 552.00p -1.25%
Jupiter Fund Management (JUP) 367.00p -1.21%