LONDON: Britain's top share index halted a two-day slide on Tuesday but a sell-off in cruise operator Carnival Corp and uncertainty about the US fiscal outlook curbed investors' appetite.
Shares in Carnival fell 5.6 percent in volume nearly four times its average for the past three months after it warned about a possible loss for the current quarter and posted a 30 percent fall in its third-quarter profit.
It was the top faller on the FTSE 100, which ended up 14.1 points, or 0.2 percent, at 6,571.46 points.
The index found support around 6,540, this week's low point, after a 1 percent drop over the previous two sessions and was in a tight range between this and its September top just above 6,600.
Political discord over the US budget raised the prospect of a federal government shutdown if a deal is not struck by month-end, deterring many investors from buying British blue chips as they traded just 3 percent off 13-year highs hit back in May.
"In the short term, it (the market) has got the US budget negotiations and the debt ceiling negotiations to cope with, so that's restraining animal spirits a little bit this week," Nick Beecroft, chairman of Saxo Capital Markets, said.
"But I think that will ultimately get sorted out next week in such a way that markets can flourish."
The FTSE has given back all the gains made after the Federal Reserve's decision last week not to scale back its equity-friendly bond buying programme as mixed comments from policy makers raised uncertainty about the Fed's future moves.
Fed speakers on Monday added to the confusion by saying there probably was not enough data to taper at the next meeting, contradicting what St. Louis' Fed president James Bullard said on Friday.
Yet many in the markets still expected the rally to resume, fuelled by recent, better-than-expected economic data from Britain and the rest of Europe.
"We believe we are in a bull market and we are not concerned by any of the recent bouts of profit-taking," said JN Financial trader Rick Jones.
Jones expected the FTSE 100 to break above the 6,600 point level this week and added he had taken on "long" positions to bet on future gains in the share prices of UK bank Lloyds and housebuilders Barratt Developments and Taylor Wimpey.
Yet an analysis of share price valuations and earnings provided a more sobering picture.
The Fed's asset purchases programme has propelled British shares to a 12-month forward price-to-earnings ratio of 12.2, a level not seen since early 2010, according to Thomson Reuters Datastream.
The sharp rise in the valuation ratio suggests that the equity rally has been more about excess liquidity in the financial markets than underlying company profit growth.
Data shows that analysts continue to steadily downgrade earnings forecast for UK companies, with the country's earnings momentum upgrades minus downgrades as a percentage of the total currently at 3.7 percent, the weakest momentum since November 2012.
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