By Shashwat Awasthi
(Reuters) - London's main index recouped almost all its earlier losses on Wednesday as markets hoped flaring tensions between the United States and Iran would not escalate further, while midcaps slipped as worries of a hard Brexit resurfaced.
The FTSE 100 (FTSE) ended roughly flat. The FTSE 250 (FTMC) tumbled 0.8% as a steep fall in payment processing firm Finablr (L:FINF) also weighed.
Both benchmark indexes were initially jolted after Iran retaliated for the killing of one of its top commanders last week by launching missile strikes at U.S. forces in Iraq.
OANDA analyst Craig Erlam suggested markets may be viewing Iran's move as a "more symbolic retaliation rather than one intended to harm, which reduces the case for the U.S. to respond with force."
Tensions had threatened to boil over during the night but dealers turned sanguine as the day progressed. In the final few minutes of trading, U.S. President Donald Trump also signalled a desire to de-escalate the crisis with Iran.
"For the near term, markets are likely to stage a second attempt at a gradual return to calm - albeit uneasy," Cityindex analyst Ken Odeluga said. He added that the risk of escalation would continue to lurk in the background.
Receding worries over the situation in the Middle East and a build in U.S. crude stockpiles led oil prices to session lows. Shell (L:RDSa) and BP (L:BP) were the biggest drags on the blue-chip index. [O/R]
The midcaps' underperformance was down to comments from a European Central Bank policymaker that Britain could crash out of the European Union without a deal by the end of 2020.
While Prime Minister Boris Johnson's victory in the Dec. 12 election had spurred hopes of a smooth Brexit process, his hard line on inking a free trade deal with the EU by December has investors concerned.
Blue-chip NMC Health (L:NMC) slumped 16% and Finablr slid 18% to a fresh low after a discounted share sale by major shareholders. Finablr's unit Travelex separately confirmed it was hit by a software virus attack.
Wood Group (L:WG) skidded 7.6% after UK's competition watchdog said it would probe the proposed sale of the company's nuclear unit to Jacobs Engineering (N:J).
Sirius Minerals (L:SXX) soared 35% to a near four-month high after Anglo American (L:AAL) said it was in advanced talks to buy the fertiliser maker. Anglo shares ended flat.