The FTSE 100 grew in confidence as Monday morning progressed, though it still went into afternoon dealings in the red.
The pound briefly traded above the $1.12, hitting a new post-mini-budget highs.
The FTSE 100 index was down 35.51 points, 0.5%, at 6,858.30. It had been down more than 1% in earlier trade, however.
The FTSE 250 was down 61.47 points, 0.4%, at 17,106.87, and the AIM All-Share was down 3.13 points, 0.4%, at 803.25.
The Cboe UK 100 was down 0.7% at 684.72, the Cboe UK 250 was down 0.3% at 14,611.08, and the Cboe Small Companies was down 0.2% at 12,704.15.
In European equities on Monday, the CAC 40 in Paris was down 1.1%, while the DAX 40 in Frankfurt was down 0.7%.
UK Prime Minister Liz Truss and Chancellor Kwasi Kwarteng have abandoned a plan to abolish the top rate of income tax for the highest earners in an astonishing last-minute U-turn.
The chancellor acknowledged that their desire to borrow billions to axe the 45% rate on earnings over £150,000 had become a ‘terrible distraction’ amid widespread criticism and threats of a rebellion.
Hours before he had been due to tell the Conservative Party conference they must ‘stay the course’ on the plans.
Sterling was seen as high as $1.12 as news of the U-turn broke. The pound was quoted at $1.1198 at midday Monday, up from $1.1149 at the close on Friday.
Meanwhile, the downturn in the UK's manufacturing sector persisted in September, according to new figures from S&P Global.
The purchasing managers' index for September was 48.4 points, rising from 47.3 in August. The reading moved closer to the 50.0 point no-change marker, indicating the rate of contraction slowed during the month.
It came in slightly below a previous flash estimate of 48.5 points, however.
Contractions were seen across the consumer, intermediate and investment goods industries, with the steepest decline seen in intermediate goods producers.
The euro stood at $0.9783 at midday Monday, down from $0.9796 on Friday.
Credit Suisse shares were down 7.9% in Zurich, as concerns over its financial health mounted over the weekend. Investor concern surrounds its level of credit default swaps.
The Bank of England said it is keeping an eye on developments at the Swiss financial services firm.
Credit Suisse moved to reassure its staff in the face of market turmoil and a stock price slide, Bloomberg reported late Friday.
In a memo, Chief Executive Officer Ulrich Koerner told staff that the Swiss bank has a ‘strong capital base and liquidity position’.
In the FTSE 100, Vodafone climbed 2.8% as it confirmed it is in discussions with Hong-Kong based CK Hutchison Holdings over a possible combination of Vodafone UK and Three UK.
‘The envisaged transaction would involve both companies combining their UK businesses, with Vodafone owning 51% and our partner CK Hutchison owning 49% of the combined business,’ it explained.
The relative ownership would be achieved through differential leverage, with no cash consideration to be paid.
Vodafone said a combination would provide the enlarged group with the ‘necessary scale’ to speed up the rollout of full 5G in the UK, as well as to extend broadband connectivity to rural communities and small businesses.
Scottish Mortgage Investment Trust was 4.3% lower, with its tech stock-heavy investment portfolio suffering after steep losses on the Nasdaq Composite in recent days.
Halma was down 3.1%, after announcing a $168.0 million acquisition of US medical consumable device maker IZI Medical Products LLC.
IZI will be a stand-alone company within Halma's Healthcare sector, headed up by its current management team.
Telecom Plus topped the FTSE 250, jumping 22%. The multi-utility provider raised its full-year profit expectations, after a ‘record’ number of UK households signed up to try and save on their energy bills.
The company said it has seen a reduction in the previously expected cost of multi-service discounts during the second half and an improved outlook for energy affordability. It noted the recently announced price guarantee, which will cap average energy bills at £2,500 per household for the next two years.
Based on this, Telecom now expects full-year profit to be ‘materially ahead’ of current market expectations.
On AIM, foreign exchange provider Argentex was up 14%. It expects revenue to rise 75% to £27.4 million year-on-year in the six months to September 30. It said the recent historic lows in sterling have provided ‘exceptional short-term trading conditions’.
Brent oil was quoted at $88.48 a barrel at midday in London, rising from $86.35 late Friday. FTSE 100-listed oil majors Shell and BP were up 2.3% and 1.7% respectively, tracking the crude price higher.
Oil prices rallied on Monday as expectations that the world's largest producers planned to slash production grew.
The Organisation of Petroleum Exporting Countries and its key allies, collectively called OPEC+, is expected to deliver a substantial cut in production when it meets on Wednesday against the backdrop on gloomy energy demand outlook.
Gold was quoted at $1,664.64 an ounce Monday, lower against $1,672.50 at the close on Friday.
Against the yen, the dollar was trading at JP¥145.09, higher compared to JP¥144.68 late Friday.
US futures pointed to a mixed open in New York, with the Dow Jones Industrial Average called up 0.4%, the S&P 500 index called up 0.2%, and the Nasdaq Composite expected to open 0.2% lower.
Still to come on Monday's economic calendar is a US manufacturing PMI at 1445 BST.
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