The FTSE began to recover early losses on Thursday after the European Central Bank (ECB) revealed modest take-up of its latest short-term loan facility.
London's leading index had slumped to an intra-day low for 2010 in early trading following murmurs ratings agency Moody's may downgrade the triple-A sovereign ratings on Spain.
But the ECB today said 78 banks were granted a lower-than-expected €111.2bn in six-day liquidity to tide them over until next week's regular offer of unlimited seven-day liquidity.
This comes on top of the €131.9bn borrowed by 171 institutions in a separate three-month money operation on Wednesday.
Taken together, the two operations fall €199bn euros short of the repayment of 12-month funds.
The news appeared to calm markets which had earlier been in freefall. London's FTSE recovered to 4,875, a loss of 41 points, or 0.85%, after earlier slumping as low as 4,834.
Elsewhere, the German Dax, earlier down at 5,894, had improved to 5,927 while the French Cac, earlier at 3,374, has climbed to 3,401, a 1.4% loss.
Markets were spooked earlier on Thursday after Moody's last night announced it has put Spain's AAA sovereign rating on review for "possible downgrade".
It said the country's economic prospects are deteriorating at a time when its government is attempting to cut its deficit.
Moody's will now evaluate Spain's credit rating again over the next three months. It said any cut would only be by "one, or at most two, notches".
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