FTSE 100: 7364.56 ▼ -60.84 (-0.82%)
The FTSE 100's recovery from lows stalled despite US markets staging their biggest two-day rally in more than 18 months, as president Donald Trump outlined his infrastructure spending plans.
The Dow Jones closed 1.7% higher yesterday while the S&P 500 was up 1.4%, building on Friday's recovery from last week's sharp sell-off. The S&P 500's 2.1% rise since the end of last week is its biggest two-day rally since June 2016.
US markets were buoyed by Trump's plans to upgrade US roads, airports and other infrastructure, with a pledge of $200 billion (£144 billion) from the government, which he hopes will be supplemented by 'at least $1.5 trillion' from state governments and companies.
But the bullishness failed to catch on elsewhere, with Japan's Nikkei 225 falling 0.7% overnight.
The FTSE 100 fell four points at the open to 7,173, Germany's DAX 30 was down 0.3% and the French CAC 40 dropped 0.1%.
Michael Hewson, chief market analyst at CMC Markets UK, said investors were likely to be wary Trump's plans could trigger another bond market sell-off.
'If anything the probability of higher yields appears to have increased after yesterday's new US spending plans were revealed,' he said.
'While the overall amount of new federal spending of $200 billion may not seem that much when set against the headline figure of $1.5 trillion, the forecast of a 10-year deficit of over $7 trillion when compared to a previous estimate of $3.2 trillion implies a barrow load of extra bond issuance which could well drive prices much lower.'
The yield on 10-year US treasuries breached the 2.89% mark yesterday, but has now fallen back to 2.82%.
'This inability to push much beyond 2.9% could help underpin the current rebound for stock markets in the short term, especially if tomorrow's US inflation comes in on the soft side,' said Hewson.
On the FTSE 100, TUI (TUIT) led the way, up 3.2% at £16.45 after the travel group reported strong summer bookings.
Pendragon (PDG) lit up the FTSE Small Cap index, up 11.5% at 23.3p, as the car dealer announced a sharper focus on used vehicles as full-year profits slumped 20%.