H opes of a prompt resolution to America's first shutdown in non-essential government services in 17 years helped global markets recover ground.
Deadlock over President Barack Obama's healthcare reform has stalled a temporary funding bill, forcing around 800,000 federal workers into unpaid leave and seeing all but non-essential government activities suspended.
But investors were betting on an imminent agreement and limited impact on the US economy, helping markets steady following the previous session's steep losses, with the FTSE 100 Index closing just 2.2 points lower at 6460.
B ourses in Frankfurt and Paris were both up by more than 1% and Wall Street's Dow Jones Industrial Average rose solidly in early trading.
The weakening greenback left the pound at a year-long high of 1.62 against the US dollar, while sterling also advanced against the euro to 1.20.
The price of oil was also hit by volatility, falling below 102 US dollars a barrel in New York at one stage as the partial government shutdown threatened to slow the economy and reduce demand in the world's largest oil consumer.
Joe Rundle, head of trading at ETX Capital, said traders were more positive over the outlook of US political negotiations and the possibility that the shutdown will boost chances of the US Federal Reserve further pushing back plans to taper its massive economic stimulus drive, potentially until after 2013.
He said: "The risk tone improves somewhat as investors take the view that a partial shutdown, if resolved quickly, will do little damage to the overall health of the US economy."
"That does however mean that we will need to hear the right sounds out of Washington to feel confident enough that the shutdown will not damage economic growth."
Further progress on London's top tier was held back by falls from blue chip heavyweight and consumer goods giant Unilever, as well as a weaker-than-expected manufacturing survey.
The CIPS/Markit manufacturing purchasing managers' index (PMI) survey recorded a level of 56.7 in September, down on August's recent peak of 57.1 and below City expectations for 57.3.
In corporate news, shares in Flora and Magnum-maker Unilever fell by 3.4% after its surprise warning that trading in emerging markets has been disappointing over the last three months.
While the Anglo-Dutch firm said it remained on track to hit its targets for this year, shares responded with a decline of 82p to 2358p.
Consumer goods peers such as Reckitt Benckiser were also hit, down 57p to 4463p, with d rinks companies SABMiller and Diageo likewise suffering, off 88.5p to 3055p and 8.5p to 1956.5p respectively.
Building supplies firm Wolseley moved in the opposite direction, rising 3% or 99p to 3296p after it reported a rise in full-year profits and underlying revenues and said it would return £300 million to shareholders through a special dividend.
A new logo and slogan overhaul at Thomas Cook failed to inspire its shares, down 1.8p to 151.6p
The FTSE 250-listed holiday firm will roll out a "sunny heart" logo across all its websites, high street shops and planes as part of a major brand overhaul.
The biggest risers on the FTSE 100 were easyJet up 40p to 1318p, William Hill 12.5p ahead to 415.5p, Wolseley 99p firmer to 3296p and Prudential up 34p to 1185p.
The biggest fallers on the FTSE 100 were Fresnillo down 48.5p to 924.5p, Aggreko down 63p to 1541p, Unilever 82p weaker to 2358p and SABMiller waning 88.5p to 3055p.