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The FTSE 100 (^FTSE) ended the day marginally higher on Monday, regaining its early losses which were sparked by worries over US national debt.
London’s blue-chip index ended the day up 14.75 points to finish at 8,699.31, a 0.17% rise.
Markets had initially dropped on Monday after ratings agency Moody’s downgraded the US from its triple-A credit rating at the end of last week.
Moody’s pointed to higher US national debt over the last decade, which is now 36 trillion dollars (£26.9 trillion), and swelling interest costs, as its main reason for the downgrade.
Susannah Streeter, an analyst at Hargreaves Lansdown, said: “Given the pledge by Trump to cut taxes, it’s feared the situation could deteriorate further.”
She added: “The implications of Trump’s erratic policymaking are causing caution to creep back in, dampening down the enthusiasm of recent weeks.”
Meanwhile, the UK Government announced a “reset” deal with the European Union which it said cuts red tape for travellers and businesses, boosting the economy by £9 billion by 2040.
Chris Beauchamp, an analyst at online trading platform IG, said the deal is “yet another signal of how Trump’s abrasive approach continues to upend the global order”.
In Europe, Germany’s Dax (^GDAXI) rose 0.58% and France’s Cac 40 (^FCHI) fell 0.039%.
On Wall Street, the S&P 500 (^GSPC) was down 0.29% as UK markets were closing, while the Dow Jones (^DJI) was down 0.10%.
Sterling was up 0.64% against the US dollar at 1.3367, while it was 0.12 down against the euro at 1.1879.
In company news, drinks giant Diageo (DGE.L) warned that it expects US trade tariffs to cost the company around 150 million US dollars (£113 million) each year.
The Guinness and Johnnie Walker maker said it would be impacted by a 10% tariff on UK and European imports into the US, after President Donald Trump launched a raft of tariffs last month.
It said it believes its current plans will mitigate around half of the impact of these higher costs on its profit and it will work on further measures to offset the impact.
Diageo shares fell 1.07%.
Elsewhere, Dutch technology investor Prosus (PRX.AS) formally launched its 4.1 billion euro (£3.4 billion) agreed takeover of Just Eat Takeaway.com (TKWY.AS) to create a European tech “champion”.
Prosus, which is majority-owned by South Africa’s Naspers (NPN.JO), has agreed to pay 20.30 euro (£17.07) a share to buy the takeaway delivery giant.
The firm already owns a 28% stake in Just Eat rival Delivery Hero.
The biggest risers on the FTSE 100 (^FTSE) were easyJet (EZJ.L), up 17.2p to 560p, IAG (IAG.L), up 8.5p to 331.6p, Fresnillo (FRES.L), up 26p to 1026p, Tesco (TSCO.L), up 8.2p to 371.1p, and Imperial Brands (IMB.L), up 52p to 2756p.
The biggest fallers on the FTSE 100 were BP (BP.L), down 7.1p to 365.7p, Spirax (SPX.L), down 115p to 5980p, JD Sports (JD.L), down 1.5p to 91.24p, Melrose Industries (MRO.L), down 7.4p to 458p, and Pershing Square (PSH.L), down 58p to 3740p.