(Update) 14.34: Shares in GlaxoSmithKline (GSK) tumbled 6% as the strong pound and sliding sales of respiratory treatment Advair forced the drugs giant to warn on profits.
The company, a widely held income stock held by many private investors and funds, cut its 2014 earnings outlook after sales plunged 13% in the second quarter. Sales in China, where Glaxo is accused of bribing doctors to use its medicines, fell 25% on a year ago. Chief executive Andrew Witty said he was 'very concerned' about the corruption scandal. Its shares later recovered some ground but remained 72p or 4.8% lower at £14.80 on the day. Over one year they are down 12%.
The FTSE 100 edged slightly higher, up 7.7 points to 6,803, despite reports of two of Ukraine's military jets being downed by separatists, a week after the MH17 airline was destroyed, killing everyone on board.
10.00: The FTSE 100 traded flat as investors trod cautiously, fearing more punitive European Union (EU) sanctions against Russia following the shooting down of a passenger plane over the Ukraine, allegedly by pro-Russia rebels.
The FTSE 100 added a single point to trade at 6,797, as investors took a breather following gains made yesterday on signs of an easing to the Ukraine crisis. Weak EU sanctions against Russia led to further bullishness.
'Despite tough talk and the beating drums of action during the prelude to the EU foreign ministers meeting, it didn't amount to much other than a widening of Russian individuals on the naughty list,' said Jonathan Sudaria, dealer at Capital Spreads.
'The inability of the EU members to rise above national self-interest was taken as a bullish sign by markets as they realised Europe wouldn't be throwing anything at Russia worth retaliating to; and the major indices had one of their best days for months.'
'However, Europe wasn't completely void of backbone as tier three economy crippling sanctions are penned for discussion on Thursday and the door to punitive economic sanctions on the Russian economy still remains ajar.'
Kerry Craig, market strategist at JPMorgan Asset Management, said only a curtailment of energy exports on Russia would have a meaningful impact on investor sentiment, and that despite the geopolitical tensions he was still 'cautiously overweight towards risk assets and equities'.
'Right now, Russia seems to want to avoid further sanctions. Could lead to meaningful peace talks or a quicker resolution to the crisis,' he said.
Capita (CPI) was the big riser on the FTSE 100, jumping 3.5% to £11.96 as it reported an 11% rise in first-half revenue, helped by £1.3 billion of major contract wins. Chief executive Andy Parker said he was confident the outsourcing group could deliver full-year revenue growth of at least 8%.
Peel Hunt analyst Christopher Bamberry, who has the stock rated 'buy' with a £11.55 target price, said the results showed a good platform for long-term growth.
'While we are not changing forecasts at this point, we continue to see strong upward pressure, given the continuing recovery in Capita's more economically sensitive transactional businesses, continued mergers and acquisition activity, and the potential for further big ticket contract wins.'
SSE (SSE) was the biggest faller, dropping 3.2% to £14.92, after going ex-dividend. Catalyst maker Johnson Matthey (JMAT) fell 2.3% to £29.90 after announcing an 11% drop in first quarter underlying profits.
Outside the FTSE 100, 'mid cap' stock Renishaw (RSW) surged 15.2% to £16.92 after reporting a 17% jump in full-year pre-tax profit.
Timing of interest rate rise in the balance
Minutes of the Bank of England's July monetary policy committee meeting meanwhile suggested the argument over an interest rate rise late this year or early next is tightly balanced.
The minutes pointed to contradictory signs from inflation - which rose unexpectedly to 1.9% in June - and wages, which remain weak in the face of strong rises in employment.
'On one intepretation, the risk of a small rise in Bank rate derailing the expansion and leaving inflation below the target in the medium term was receding as that expansion became more established. Some survey indicators of wage growth had already picked up materially and, although the degree of slack was highly uncertain, it was likely that it was being absorbed more rapidly than had been envisaged in the May Inflation Report projection,' the minutes read.
'On an alternative interpretation, although the domestic economy was growing at or above longer-term average rates, there was little indication of inflationary pressures building and there was uncertainty as to whether there had been a more structural change in the relationship between the labour market and inflation. A premature tighetning in monetary policy might leave the economy vulnerable to shocks, with the effectiveness of any further stimulus uncertain.'
'Against this backdrop, the committee agreed that no increase was warranted at this meeting, although for some members the decision had become more balanced in the past few months than earlier in the year.'