The markets reacted steadily to news of the UK's exit from Eurozone bailout talks, with the FTSE relatively flat at -0.07% to 5479 points.
Britain found itself isolated after David Cameron vetoed a revision of the Lisbon treaty, prompting a majority of EU members to agree to draw up their own deal outside the architecture of the union.
The move allows French president Nicolas Sarkozy to press on with his preferred plan of an inter-governmental agreement among the 17 members of the eurozone to underpin tough new fiscal rules for the single currency.
French and German stocks fell during early trading in what looked set to be a fourth day of declines, before rallying with France's CAC up 0.74% and Germany's DAX up 0.24% as markets welcomed moves by euro countries to pursue closer integration and stricter budget rules.
Joshua Raymond, chief market strategist at spread better City Index said:
Certainly some positive things have come out of the summit. The 17 single currency nations have come together and agreed some key terms for a new treaty to form a fiscal union. If these measures get integrated efficiently and in a credible fashion, then it would help to prevent the crisis that we have seen today from happening in the future.
After suffering hefty falls in previous sessions, banks led the blue chip risers, with Lloyds Banking Group up 2.5% to 25.72p, Barclays up 2.3% to 184.5p, and Royal Bank of scotland up 1.91% to 21.33p in morning trading.
Aviva dropped 1% as Exane BNP Paribas cut its rating for the insurer to 'netural', citing worries over its exposure to Italian government debt.
Pharmaceuticals were among the biggest FTSE 100 fallers, with Shire slipping 1.26% to £21.19 and GlaxoSmithKline down 1.18% to £14.23 after its drug Tykerb failed to make an impact in a clinical trial testing its efficiency in women with early breast cancer.
UBS said that positive news from European leaders could benefit financial and mining stocks, while consumer staples, utilities and pharmaceuticals should outperform if the crisis deepens. The bank's strategists said:
We believe the market is priced for a small decline in earnings next year. While we see upside to end 2012, we believe that we would need to see a big positive surprise from EU politicians to push convincingly through this range-bound market in the near term.
