Britain's leading shares rose on Monday breaking their worst losing streak for seven months, as gains in shares of oil producer BP and a sharp rally on Wall Street offset declines in mining and financial stocks. World markets were rattled by concern about US hedge funds hit by the deterioration in the domestic subprime loan sector and the prospect for rising interest rates.
The FTSE 100 closed up 21 points, or 0.32 percent, at 6,588.4 points, off an intraday low of 6,522.3 and breaking a five-day stretch of declines. The index has shed about 1.1 percent so far in June, making this its worst monthly performance since November.
"There is very much a sense that we're reaching the top of the equity cycle, what with worries over the economy, over inflation, over where interest rates are going and I think we basically have a situation where investors are rethinking risk," said Peter Dixon, an economist with Commerzbank in London.
"Investors are concerned that they've got exposure to certain markets, China being one, and the subprime issue in the US is slowly coming out of the woodwork and beginning to affect how (they) think," he said.
US blue chip stocks rose into positive territory, supported by lower government bond yields and by data that existing home sales did not slow as much as some feared in May. BP shares were the biggest positive influence on the FTSE, rising almost 1 percent after the company said it would restart 10,000 barrels a day of Alaskan crude oil production.
Shares in J. Sainsbury, in which Qatar's royal family raised its stake to 25 percent earlier this month, rose 1.8 percent to 577.15 pence as traders cited talk of a potential 610 pence per share bid for the British supermarket group.
Sainsbury declined comment. Four of the ten biggest losers on the FTSE were miners, which fell as copper prices shed over 1 percent, stripping nearly three points off the index.
Anglo American shed 1.4 percent and Xstrata fell 0.9 percent. Copper miner Antofagasta lost 1.6 percent after a downgrade from Cazenove, while platinum producer Lonmin fell 1.6 percent. Financial stocks, led by brokerage Man Group, were the second largest negative weight on the broader market. Man shares fell by more than 1 percent.
Some strategists felt the decline in the broader market may serve as a buying opportunity for investors who had missed out on the unabated rally between March and May this year. "Lots of people have been saying that the best thing to happen to the market is that it all goes quiet for a couple of months," said Jim Wood-Smith, Williams de Broe head of research.
"People are generally going to feel much happier with the FTSE trading around 6,500 or 6,600 than up at 6,800 or 6,900." In M&A news, London Stock Exchange shares fell 1 percent - after an earlier 7 percent decline - after sealing a 1.6 billion euro deal ($2.15 billion) to buy Italian rival Borsa Italiana, the latest in a sweep of exchange mergers.
Shares in Enterprise Inns, Britain's second-biggest pub owner, rose nearly 2 percent after an upgrade from Citigroup, after falling 6.6 percent last week. Citi also raised Enterprise's price target to 859 pence from 762.