Greek conservatives secured a narrow victory over the radical left at the weekend, increasing the likelihood of Athens sticking to its international bailout terms and staying inside the single currency bloc.
But investors remained concerned about problems in Italy and Spain and the election outcome was also seen reducing the chances of near-term stimulus action from global policymakers.
“The knee jerk reaction by the markets, ie by the traders, was: ‘surely this is good news’. But there was no follow through from investors and then things tailed off,” said James Ferguson, strategist at Westhouse Securities.
UK equity investors should “maximise their exposure to the dollar at the expense of the euro and thank their lucky stars that they are in the UK rather than Europe”, he added.
“The UK is looking like a safe haven. But the problem as an equities investor is that whereas you get relatively good benefits for domestic or US exposure, our biggest trading partner is Europe and that is going to be difficult.”
The FTSE 100 closed up 0.2 per cent, or 12.28 points, at 5,491.09, over 60 points below its earlier one-month intra-day peak, but outperforming a 1.2 per cent drop on the Euro STOXX 50.
The 50-day moving average at around 5,549 and the 200-day MA at 5,560 also kept a lid on the FTSE’s gains. The crossover of the 50-day line below the 200-day one at the end of last week is seen as a bearish signal by chart-watchers.
Eurozone concerns hit volatile financials, with Lloyds down 3.6 per cent and Royal Bank of Scotland off five per cent.
“Longer-term investors will still be left with macro uncertainty surrounding the direction of EU policy, the progress of the Greek and Spanish bailouts and the extent of the economic slowdown,” strategists at HSBC said in a note.
“Faced with this uncertainty we favour stocks that are resilient to macro shocks.”
HSBC’s top picks in the UK include insurer Admiral Group and defence giant BAE Systems for their relatively high dividend yields, as well as Intercontinental Hotel Group, broadcaster ITV and advertiser WPP for their historic record of outperforming in both an up and a down market.
Defensive sectors such as pharmaceuticals and food retailers – which focus on goods that people tend to buy even in tough times – provided the biggest boost to the FTSE 100 yesterday.
Luxury, which has been enjoying an increasingly defensive status thanks to solid demand from the newly rich emerging market buyers, also fared well.
“The luxury sector has never had it so good,” Deutsche Bank said in an upbeat note on the global sector.
Britain’s Burberry – famed for raincoats lined with its camel, red and black check pattern – added 2.9 per cent. Deutsche rates Burberry “hold” with a price target of 1,550 pence, implying an upside of 12 per cent from current levels.
Meanwhile Eurozone stocks also fell as renewed fears over the borrowing costs of Spain and Italy eclipsed initial relief over the Greek election results.
The Eurozone’s blue chip Euro STOXX 50 index ended 1.18 per cent lower at 2,155.58 points, while the broader FTSEurofirst 300 index of top European shares closed 0.01 per cent higher at 993.36 points, after gaining 1.1 per cent in morning trade.