Bid speculation kept London shares afloat on Monday, but a weaker start on Wall Street and poor results in the airline sector reminded investors of fragile consumer confidence.
By the close, the FTSE 100 had edged 0.05 per cent lower to 6,026.2, but the FTSE 250 remained 0.7 per cent higher 10,262.1.
Chinese interest in the London-listed miners carried the sector for most of the session. Anglo American rose 1.2 per cent to £29.45 after announcing a strategic relationship with China Development Bank to develop projects in China and Africa.
Chinese companies have become increasingly visible players in the global mining industry. On Friday, China's state-owned aluminium producer Chinalco, together with Alcoa (NYSE:AA) of the US, bought a $14bn stake in Rio Tinto.
The move cast confusion on BHP Billiton (NYSE:BHP)'s $119bn bid for Rio. The UK Takeover Panel has given BHP until Wednesday to decide whether it would make a formal offer. By mid afternoon in London, Rio shares were down 1.3 per cent to £55.10, while BHP was up 1.7 per cent at £16.49.
Meanwhile, China Development Bank was reported to have approached Glencore, the biggest shareholder in London-listed miner Xstrata, with an offer for its 35 per cent stake.
"As the world's largest and fastest growing consumer of raw materials and producer of manufactured items, China has a strong interest in preserving a diversified and competitive mining industry," said John Kemp at Sempra Metals.
Mr Kemp added: "Senior leaders are clearly worried about the industry's rapid consolidation, and the risk it will tilt the balance of market power further in the direction of a handful of mining majors, and against China's own industries."
Xstrata shares, however, fell 2.7 per cent to £38.82 after Vale, the world's second largest mining group, fired Merrill Lynch as one of its advisers after the bank said it would not help finance a possible $90bn takeover of Xstrata.
But elsewhere in the sector, Vedanta Resources climbed 3 per cent to £20.19 and Antofagasta added 1.4 per cent to 710p.
Friends Provident, the insurer, rose 3.5 per cent to 140½p on hopes of an offer from US private equity investor JC Flowers later this week. The stock fell more than 17 per cent last week.
Meanwhile, Independent broadcaster ITV rose 2.8 per cent to 78.6p after rumours three private equity companies were considering a £3bn takeover.
Royal Bank of Scotland shot to the top of the FTSE leaderboard on rumours it was building up a war chest to protect its dividend should turmoil in the financial markets deepen.
Possible equity sales could include the 4.3 per cent stake in Bank of China, bought in August 2005 for $1.77bn, now worth just under $7bn. But analysts were sceptical, saying one of the terms of the purchase was a three-year lock in period. Shares in RBS gained 4.3 per cent to 394.8p.
Carphone Warehouse fell as investors took profits following last week's speculative gains on the back of rumours of interest from Best Buy of the US. Shares in the UK mobile phone retailer fell 7.3 per cent to 314¾p.
On the FTSE 250, Punch Taverns fell 6.5 per cent to 667½p after it approached rival Mitchells & Butlers with an all-share offer that could create Britain's biggest pub group with a combined value of £11bn, including debt.
M&B shares climbed 3.6 per cent to 466½p after it confirmed interest from Punch and others, and said it would give "careful consideration" to all parties.
Also on the mid-cap index easyJet fell 3 per cent to 444p after Irish budget airline rival Ryanair reported a 27 per cent drop in quarterly profits and warned of tough times ahead as fuel costs remained high and consumer demand slowed.
Meanwhile, Northern Rock was down 8.3 per cent to 88½p ahead of today's deadline for offers for the ailing bank.
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