FTSE pares back losses on positive start for Wall St

London's Footsie staged a late session fight back, closing down 10.20 points at 5062.93, thanks to some steadier trading on the Dow Jones Industrial Average on Wall Street.

The UK benchmark index had at one stage fallen more than 2 per cent in another session of heightened volatility on sovereign debts and growth prospects in Europe.

Investors were also unnerved after new laws to rein in Wall Street were passed in the US, which hit bank shares hard.

The Senate approved a sweeping Wall Street reform bill on Thursday night, capping months of wrangling over the biggest overhaul of financial regulation since the 1930s.

By a vote of 59-39, the Senate awarded a victory to President Barack Obama, a champion of tighter rules for banks and capital markets after the 2007-2009 financial crisis that slammed the economy and led to massive taxpayer bailouts.

The Senate bill must now be merged with a measure approved in December by the House of Representatives.

Changes proposed in both bills threaten to constrain the banking industry and reduce its profits for years to come.

The Footsie fell below the 5000 level before US trading opened, putting it in danger of the first close below the benchmark since last October. Lower-than-expected UK public borrowing figures for April gave little cheer although Germany approved its share of the 750 billion euro (654bn) bail-out.

But the Dow Jones started on a firmer footing after its 3.6 per cent fall on Thursday, heading for a close in positive territory.

In currency news, the pound held its ground at 1.45 dollars and 1.15 euros as sentiment started to improve towards the end of the session thanks to news of Germany's support for the bail out plan.

Among stocks, banks had been among the worst impacted shares in the early session sell-off, however they clawed their way back into the black. Royal Bank of Scotland closed up 3/8p to 451/4p and fellow taxpayer-backed player Lloyds Banking Group rose 7/8p to 553/4p.

Beleaguered airline British Airways also made an impressive bounce back after spending much of the session in the red.

It recorded pre-tax losses of 531m. While the losses were not as bad as first feared and the company expects to break even this year, it faces 15 days of strikes from Monday in a bitter union dispute.

BA shares closed up 2p to stand at 1881/2p.

Miners managed to bounce back after steep falls earlier this week, with Xstrata advancing 6 per cent or 563/4p to 950p, followed by silver

miner Fresnillo, which lifted 35p to 850p.

Mobile phone giant Vodafone was up 1/2p to 130p on reports that it could sell its 55 per cent stake in its Egyptian business for around 3bn.

In corporate news, the London Stock Exchange declined 61/2p to 6431/2p even though results showed a return to profit in the year to March 31.

Elsewhere, newspaper distributor and aviation services firm John Menzies lifted 2 per cent after upping profit expectations for the full year.

Its shares rose 5p to 353p as the group said trading had remained strong across both businesses, despite a 2.5m hit from the volcanic ash cloud disruption in its aviation arm.

The biggest Footsie risers were Xstrata, Fresnillo, Eurasian Natural Resources up 371/2p to 972p and Antofagasta ahead 311/2p to 8581/2p.

The biggest fallers were BP down 221/8p to 5063/4p, Smith & Nephew off 231/2p to 6141/2p, Shire down 41p to 1342p and SABMiller down 50p to 1862p.