The FTSE 100 index ended up 16.63 points, or 0.3 per cent, at 5,873.21, in choppy trading, having dropped 1.2 per cent in the previous session on concerns over US debt.
Banking stocks bounced after the sharp falls seen on Wednesday, contributing more than 12 points to the index's advance, as bargain hunters moved in, encouraged by better-than-expected US data on home sales and employment.
But investors remained jittery over the impasse in US debt ceiling talks that has sparked fears of a US debt default and a credit rating downgrade.
“Gains could be fairly short-lived in this market,” Martin Dobson, head of trading at Westhouse Securities, said.
“There is nervousness out there and I don’t think anyone's prepared to take any positions until they've got a bit more clarity.”
A vote of approval yesterday in the House of Representatives for a deficit-cutting plan presented by the top Republican in Congress, John Boehner, could help ease the tense debt deadlock.
Among the risers pharmaceutical firm Shire gained 4.2 per cent after the company reported a better than expected rise in second-quarter revenue and earnings, prompting Matrix to repeat its “buy” rating on the stock.
AstraZeneca edged up 0.2 per cent after the drugmaker raised its 2011 earnings outlook and promised to hand more cash back to shareholders.
BT Group, meanwhile, advanced 3.8 per cent after the telecoms provider said cost-cutting helped lift its core profit by three per cent in its fiscal first quarter, and on relief the firm retained its outlook.
BAE Systems was the top blue-chip riser, up 4.9 per cent, as the defence contractor raised its dividend and announced a £500m share buyback, as it moved to reassure investors it can navigate through military spending cuts in the UK and United States.
Elsewhere in the sector, Rolls-Royce firmed 0.6 per cent after well-received first-half numbers which included an eight per cent hike in the dividend. Evolution Securities raised its target price for the company.
Concerns over Eurozone sovereign debt dampened the mood, as Italy's borrowing costs soared at a closely watched bond auction yesterday.
Michael Hewson, market analyst at CMC Markets, sees little in the way of catalysts to jolt the FTSE 100 out of a range it has traded within since the start of the year – a high of around 6,105 and a low of 5,600.
Into the mix, UK corporate results, broadly speaking, have done little to inspire markets, with UBS pointing out that earnings momentum has turned negative.
Compass Group topped the FTSE 100 fallers’ list, off three per cent, after the world’s biggest contract caterer’s unsurprising trading update prompted a trimming of estimates following a conference call, broker Arbuthnot said.
Inmarsat was a top blue-chip riser, up 3.9 per cent, with traders saying the satellites operator was benefiting from confirmation of a big deal signed by its US partner LightSquared.