London's blue chip index closed down 6.78 points, or 0.1 percent at 5,885.38, bouncing off an intraday low 5,829.38 as U.S. equity markets strengthened.

But volumes remained light at just 84 percent of an already weak 90-day average, pointing up a muted appetite for risking fresh cash against a mixed economic backdrop.

The U.S. data suggested the recovery in the world's biggest economy was gaining a head of steam and further decoupling it from other developed economies.

U.S. jobless claims dropped to a near four-year low, housing starts last month beat economists' expectations and factory activity in the U.S. Mid-Atlantic region gained momentum in February as new orders picked up.

We are getting the impression that the U.S. economy is actually better than the Federal Reserve says it thinks it is. We wonder if U.S. rates policy - or at least implied tenure - is designed to help Europe more than the U.S., a London-based trader said.

We think the Fed will have to raise rates before 2014. Unless of course they hope to inflate away a chunk national debt.

Crude oil rallied after the U.S. data, which suggested demand from the United States would remain robust and support the current price above $100 a barrel.

Integrated oils pared losses with heavyweights BP rising as the prospect of higher oil prices would likely support future earnings.

The world's biggest building supplies company Wolseley , which has a big exposure to the United States, was up 1.4 percent.

The latest U.S. jobless data builds on a recent trend of good news, said David Miller, Partner at Cheviot which has around 3.5 billion pounds of assets under management.

U.S. companies have been looking increasingly attractive for a while and we have been adjusting UK stock selection so that it is focused on companies benefiting from a stronger U.S. economy such as Intercontinental Hotels, and Ashtead .

GREEK DRAMA

The protracted Greece bailout saga is a key reason for the FTSE 100 struggling to break out of its tight range between 5,850 and 5,900, in place since Feb. 3, although progress appeared to be made between Athens and its international lenders on achieving extra budget cuts.

Markets remain nervous Greece won't get its money, Angus Campbell, head of sales at Capital Spreads, said.

Europe is sceptical that following the Greek general election in April austerity measures will not be implemented by the new administration and the euro zone will simply be throwing good money after bad, he said.

In another sign the euro zone government debt crisis could infect the global financial system, Moody's said it may cut the credit ratings of 17 global and 114 European financial institutions.

Among the UK-listed banks under threat were HSBC and Barclays.

Reflecting Moody's concerns, Societe Generale, France's second-biggest listed bank, warned of fresh pain in 2012 after a grim fourth quarter.

UK miners fell for the third successive session.

The sector had gained 30 percent since late 2011 but Citigroup switched to a bearish stance on Wednesday, citing spot commodity prices still pointing to earnings downgrades.

Cuts to military spending by the United States and Britain bit into profit at BAE Systems, Europe's biggest defence contractor, and sent its shares 2.3 percent lower.

International Airlines shed 1.2 percent as Deutsche Bank cut its earnings forecasts on the owner of British Airways and Iberia by up to 31 percent ahead of the company's full-year results due on Feb. 29.

On the upside, Reed Elsevier rose 2.9 percent after the Anglo-Dutch publishing and events group reported higher full-year profit and said it expects to generate more revenue and profit growth in 2012.

The majority of the top gainers on the FTSE 100 were defensive stocks such as Imperial Tobacco and utility Severn Trent.