LONDON (Reuters) - The FTSE 100 closed flat on Thursday after comments from a top U.S. lawmaker in U.S. budget negotiations sparked a sell-off in shares, which had been boosted by a recovery in Chinese industrial data.
The market reopened after the Christmas holiday hoping for progress in the U.S. budget negotiations now President Obama has returned from vacation early to try and get a deal done.
Major tax hikes and spending cuts known as the "fiscal cliff" will come into force in the United States on January 1 unless the White House and Democrat-controlled Senate and the Republican-run House of Representatives reach a budget deal to avoid an abrupt economic slowdown.
However, the FTSE 100 lost 0.3 percent in the 15 minutes after Senate Majority leader Harry Reid said that it looked as if the U.S. was set to head over the fiscal cliff.
"Pretty much everyone we speak to now are pretty much unanimous that we're going to go over the cliff. We may not go over it for very long, but we're going to go over it," Will Hedden, trader at IG Index, said.
The FTSE 100 closed slightly up at 5,954.30, a gain of 0.12 points. Volumes were just 47.2 percent of the 90-day average.
The market had been up as high as 0.7 percent in midday trade, testing but failing to break through resistance around the 6,000 level.
"At 5,997 it had a go, and got really close, but there were always going to be people with sell orders waiting at around 6,000, so not really surprising to see it come off in that way," Hedden said, adding that the paring of gains was unlikely to herald the beginning of sustained falls in stocks.
"We're not seeing a huge amount of volume, but we're also not seeing a rash run to exit stocks just based on what's happening to the US. The risk on being caught short when a deal gets done (on the fiscal cliff) is potentially quite dangerous."
Miners and industrial metals companies were up 1 and 1.9 percent respectively after data showed that annual profit growth at China's industrial companies jumped 22.8 percent in November from a year earlier, accelerating from 20.5 percent in October.
The China data prompted a rally in the copper price, which rose to a one-week high. Chinese stocks hit six-month highs after the data.
"Miners got a bit of support from the Chinese data. But it's such thin conditions that I don't want to read too much into it, because these could all quite easily be superseded by fiscal cliff developments," Jack Pollard, analyst at Sucden Financial Private Clients, said.
(editing by Ron Askew)