The FTSE rallied valiantly this afternoon on the back of strong US consumer confidence data, after incurring a morning of losses from concern over the ongoing Libya crisis.
Banks and commodities suffered from concerns that crude oil prices would spike and knock the global recovery, and the FTSE 100 closed down 0.3 per cent at just 5,996.76.
The FTSE 100 volatility index, a barometer of investor anxiety, has risen more than 30 per cent so far this week: the higher the index, the lower investors' appetite for risky assets.
Brent and US crude traded at two and a half year highs on concerns that supply could be disrupted by further Middle East protests.
“Investors are likely to be keeping a wary eye on oil in the coming days. Although the price has dropped back today, the concern is that the market will continue to put a risk-premium on the price of oil in reaction to the recent unrest,” said Yusuf Heusen, senior sales trader at IG Index.
“If this means we see $100 (£61.60) a barrel much sooner than we expect, it is clearly going to impact on global economic recovery.”
Royal Bank of Scotland bucked the weak banking sector trend, closing up 2.32 per cent at 47.72p with traders citing optimism about its full-year results on Thursday.
BHP Billiton also rose 1.62 per cent to finish at 2,413p after it boosted its oil and gas division by buying shale gas assets from Chesapeake Energy for $4.75bn.
Defence firm BAE Systems was the biggest blue chip faller, falling back 4.3 per cent to 26.8p on concerns more UK defence contracts will be cancelled as the government slashes military spending.
Serco, also heavily reliant on government spending, lost 2.2 per cent to 532.5p.
On the FTSE 250, investors welcomed chemicals manufacturer Croda International’s full-year results, pushing its price up 9.71 per cent to 1,639p on the news that it more than doubled pre-tax profit to £192m in 2010.
Engineering services provider Lamprell jumped 8.93 per cent to 305p on the news that it had won a new contract from Singapore-based Greatship Global Energy Services.
Groceries delivery firm Ocado fell most, closing down 6.35 per cent at 224p after chief executive Tim Steiner sold £5m of his stock yesterday.
US markets closed in the red, despite news that consumer confidence has risen to an almost three-year high.
“US equity markets returned from their long weekend in solidly negative territory on the back of lower European markets and the continued unrest in the Middle East,” said Michael Hewson, market analyst at CMC Markets.
“Hewlett Packard’s first-quarter earnings will also be closely scrutinised after the bell tonight, with the jury still out on new chief executive Leo Apotheker.”
The Dow Jones industrial average closed down 178.46 points, or 1.44 per cent, at 12,212.79.
The S&P 500 fell 27.57 points, or 2.05 per cent, to 1,315.44 while the Nasdaq Composite Index lost 77.53 points, or 2.74 per cent, to 2,756.42.