The FTSE 100 closed up 4.42 points, or 0.1 percent, at 5,871.24 points, having run back from an early session peak just above the psychologically important 5,900 level. "Goodbye Santa Rally for now, as poor US data mixed with the persistent worries about the fiscal cliff which remains unresolved," said Ishaq Siddiqi, market strategist at ETX Capital. "Traders are taking a prudent approach here now, as major upcoming data in the US this week such as the key monthly jobs report may likely disappoint. It must be noted that super storm Sandy has distorted major leading indicators but investors are taking no chances with this one," Siddiqi added.
--- Weak US ISM data dents stronger advance
Volumes were very thin at just 44 percent of the 90-day daily average on the first session of the final month of 2013. Stocks seen as defensive attracted the most interest, with drugmakers and tobacco the two best performing sectors. Gains in miners helped as the sector benefited along with the copper price on hopes for improved demand from China, the world's top metals consumer.
The latest readings from official and private sector surveys of China's vast manufacturing sector showed activity picked up in November, adding to evidence the economy is reviving after seven quarters of slowing growth. British manufacturing activity also shrank much less than expected in November, although the sector remains in a precarious state as new orders edged down.
But manufacturing data from the United States was less positive, with November's ISM PMI contracting more than expected, helping drag Wall Street back from early gains, with the US bluechips down 0.2 percent by London's close. Traders were also awaiting fresh news on the negotiations to avoid the US fiscal cliff, a combination of spending cuts and tax rises due to be implemented in early 2013 that could tips the world's leading economy back into recession.
"If data points into the festive period worsen more so than anticipated, then the market will likely reflect any such deterioration," said David White, Financial Trader at Spreadex. "Indeed, if this belief by investors that current prices are reflecting well the present value of expected future cash flow is to find longevity, figures like today's (US ISM) must be seldom seen," White added.
Plumbing supplies firm Wolseley, heavily exposed to the US economy via the housing sector, was a blue-chip faller, down 1.1 percent ahead of a trading update due on Tuesday. Weak energy stocks was the biggest drag on the bluechips as Brent crude slipped after the US data.
And as the early Santa Rally for stocks proved subdued, food retailers were weak, led by Sainsbury, down 1.4 percent. Waitrose, the upmarket supermarket chain owned by John Lewis, posted a 7.8 percent rise in sales in the week to December 1, with online sales jumping 58.2 percent year-on-year. Waitrose has been outperforming the wider UK grocery market, helped by the success of its 'essentials' value range and free delivery for online shopping, raising competition worries for the key festive period.