The government in Tokyo cut its economic assessment on Tuesday, citing the impact of a slowdown in the United States and China on top of Europe's debt crisis.
Investors, however, balanced this caution with hope that a keynote speech from US Federal Reserve Chairman Ben Bernanke on Friday at the Fed's annual get-together with other central bankers in Jackson Hole, Wyoming, will hint at forthcoming monetary policy moves, as he has in the past.
"Market mood is one of cautious optimism. Deteriorating fundamentals have taken a step back on hope of further action by the authorities," said Lex Van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million of assets.
"The US is now up 12 percent year to date and the Dax 18 percent, so the FTSE at up only 3 percent could start outperforming from here on," Van Dam added.
At 1035 GMT, the FTSE 100 index was up 1.51 points or 0.03 percent at 5,778.11, stuck within a tight trading range from a session low of 5,753 and a high of 5,779.
Volume for the UK blue chip index remained modest at almost 18 percent of the 90-day daily average as traders returned to their desks after a long UK bank holiday weekend, with many still dragging out the summer holiday break.
Weakness in heavyweight mining stocks, was the main factor pinning back the blue-chip gains, accounting for nearly 3.5 points off the FTSE 100 index, with the sector performance strongly linked to the state of the global economy.
Kazakhmys was one of the worst off, down 2.7 percent as both UBS and Citigroup reduced target prices for the Kazakhstan-based miner, continuing the trend seen following a drop in first-half profit announced by the group last week.
Drugmakers were also a drag on the FTSE 100 index, with GlaxoSmithKline losing 0.6 percent as UBS downgraded its rating for the stock to "neutral" from "buy" with a reduced target of 1,525 pence, down from 1,625 pence. "Given GSK's valuation, and somewhat reduced earnings visibility for the stock, we see less scope for performance versus peers, and thereby downgrade," UBS said in a note.
Peer AstraZeneca was also lower, down 0.1 percent. The drugs group has poached Pascal Soriot from Swiss rival Roche to be its new chief executive, hoping his track record in drug innovation and dealmaking can revive a company battered by clinical trial failures and patent expiries.
Navid Malik, an analyst at Cenkos Securities, said Soriot's arrival was good news for AstraZeneca and could signal a step change towards greater involvement in fast-growing biotech medicine.
KINGFISHER KNOCKED
Among individual blue chip fallers, Kingfisher was the worst off, losing 3.6 percent after BofA Merrill Lynch double downgraded its rating for Europe's biggest home improvements retailer to "underperform" from "buy".
The broker is increasingly worried about the consumer outlook in France and the implications of a sharp slowdown in the housing market on Kingfisher's like-for-like sales.
Among other retailers, Marks & Spencer shed 2.0 percent as a bid rumour boost from last week faded. M&S jumped 4.3 percent on Friday after a media report added to speculation over a possible private equity bid, but weekend press poured cold water on the talk.
JPMorgan Cazenove lifted its stance on cyclical stocks, such as retailers, to "neutral" from "underweight" in a strategy note on Tuesday, but remained concerned over the ability of growth to show any sustainable pickup.
The bank stayed "underweight" within the sector on mining, steel and capital goods companies, favouring instead firms in the hotels, media, software and leisure industries.
Cruises operator Carnival and broadcaster ITV were in demand, both up 1.7 percent.