Initial gains in London equities were tempered on Wednesday by a nervous Wall Street, after financial stocks were buoyed earlier by news of a $7.5bn investment from Warren Buffett and other investors in Goldman Sachs.

Traders were keeping a watchful eye on Washington for a second day as Congressional scrutiny of US government plans to create a $700bn rescue fund for toxic investments continued.

By the close, the FTSE 100 was down 0.8 per cent, or 40.6 points, to 5,095.6 after modest opening gains on Wall Street were soon erased. In New York, developments in Washington took precedence over those on the trading floor. The S&P 500 was 0.4 per cent lower at 1,184.09. The Dow Jones Industrial Average was 0.4 per cent down at 10,813.86.

News of the Goldman investment offered fresh hope for financial institutions, and London’s banks gained ground. HBOS was 0.2 per cent higher at 180.5p, with its merger partner Lloyds TSB rising 2 per cent to 258.094p. Man Group, the hedge fund, was 2.5 per cent stronger at 408p and Prudential, the insurer, rose 2.2 per cent to 532p. Royal Bank of Scotland was 3.3 per cent higher at 211.6722p.

British Energy was the one of the top gainers, up 5.7 per cent to 771p after French utility EDF made a £12.5bn offer for the UK’s nuclear power generator. The 774p per share bid, which also featured an alternative 700p per share offer plus a further payout linked to its future performance, was recommended by British Energy. EDF also said it was in talks with Centrica about the parent of British Gas taking a 25 per cent stake in the new group. Centrica creeped up 0.2 per cent to 338.75p.

Lower down the market, shares in newspaper group Mecom were 6.7 per cent stronger at 20p after it rebounded from pressure exerted by a big block trade in its stock put through as part of the unwinding of collapsed investment bank Lehman Brothers at the end of the previous session.

The FTSE 250 was 47.2 points down at 8,407.4, a fall of 0.6 per cent.

Additional reporting by Atideb Sarkar

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