LONDON Top shares fell on Friday, as worry over the United States's looming "fiscal cliff" overshadowed robust U.S. consumer sentiment data.
The FTSE 100 closed down 6.37 points, or 0.1 percent at 5,769.68, after a choppy session in which it sunk to a two-month low at 5,715.23.
Traders cited concern about the U.S. fiscal cliff - of about $600 billion in spending cuts and tax hikes set to begin at the start of 2013 - as a major factor behind the index's weakness.
The fiscal cliff, which may jeopardise growth, has long been a known issue, but has been making the headlines in recent days due to focus on the post-election political landscape.
The gloom lifted in the afternoon on the release of data indicating Americans were more upbeat about the outlook for their economy. U.S. consumer sentiment hit its highest level in more than five years in November, according to the Thomson Reuters/University of Michigan preliminary index of sentiment.
Trade was thin during the session, making the index's moves both ways more pronounced. Volumes picked up to 100 percent of its 90-day daily average by the close - though that 90-day average is itself weak.
"There's very little volume, very little interest. Just a little bit of a strike on some better U.S. numbers and a few people closing down their shorts ahead of the weekend," Andy Ash, head of sales at Monument Securities, said.
The FTSE's failure to stay below the important 200-day moving average, at 5,728, was also behind the short-covering going into the close, traders said.
With a focus on the fiscal cliff, cyclical stocks such as banks, down 0.8 percent, and miners, 0.2 percent lower, which tend to weaken in harsh economic times, came under pressure.
Despite U.S. President Barack Obama's re-election, the balance of power in the U.S. Congress is mostly unchanged, meaning another standoff in talks aimed at avoiding a fiscal breakdown is entirely possible.
"There's a fighting chance a compromise won't be reached before the year end and this is precisely the sort of uncertainty markets hate," Mike McCudden, head of derivatives at Interactive Investor, said.
On the upside, British Airways owner IAG added 1.6 percent as the market reacted positively to its plans to axe jobs at Spanish flag carrier Iberia to help restore group profitability.
Trading volume in IAG was robust, at nearly two and a half times its 90-day daily average.
Engine maker Rolls Royce, meanwhile, advanced 1.9 percent after saying it expects to deliver good growth in full-year profit, despite lowering revenue guidance for its marine division.
Other big individual risers were aided by recommendations from brokers who urged their investors to look for yield or value in the current depressed economic environment.
Car insurer Admiral rose 3.4 percent after BofA Merrill Lynch double upgraded the company to "buy" from "underperform" saying its key valuation metric is now its 9.1 percent dividend yield.
Admiral also saw solid trading volume, again at two and a half times its 90-day daily average.
And chemicals firm Croda International climbed 2.8 percent after Barclays raised its rating on the company to "equal weight" from "underweight".
"Croda's high valuation at a time when the environment has changed for consumer chemicals made it vulnerable to the share price correction we had feared. We see its valuation as being more reasonable at current levels," Barclays said in a note.
(Reporting by Tricia Wright, additional reporting by David Brett; editing by Ron Askew)