Luxury fashion group Burberry saw around £1.3 billion wiped off its stock market value today after warning full-year profits will be at the bottom end of expectations.

Shares in the blue chip firm tumbled by 21% or 287p to 1088p, leaving the stock at its lowest point since last October, as it gave the grim outlook on the back of increasingly challenging trading conditions.

The wider FTSE 100 Index closed flat, down one point at 5792.2, having clawed its way back from earlier losses.

A positive opening on Wall Street helped buoy London stocks, with the Dow Jones Industrial Average up more than 85 points in early trade, helped by signs of growing business optimism and better economic news as the US trade deficit expanded by a less-than-expected margin.

But investors are cautious as the eurozone woes continue to weigh on their minds.

Germany is expected to back a bill tomorrow that will ratify the eurozone bailout fund, however concerns are growing after comments by Spain's prime minister Mariano Rajoy that he will not accept certain conditions in return for a European Central Bank (ECB) proposal to buy Spanish government bonds.

There was added uncertainty ahead of Thursday's announcement from the US Federal Reserve, when policymakers will be under pressure to detail further asset purchases under its quantitative easing programme.

With trade deficit figures also out in the UK, investors took little cheer from news that the overall UK trade deficit narrowed to £1.5 billion, down from £4.3 billion pounds in June, as much of the improvement was a rebound from the impact of the additional public holiday in June.

The pound rose against a weakened dollar - to 1.61 US dollars - amid expectations for more QE in the US.

But hopes the eurozone bailout will gain German legal backing this week helped the euro strengthen, with sterling falling to 1.25 euros.

Among stocks, Royal Bank of Scotland continued to offer some support to the market amid ongoing speculation it will unveil plans for the flotation of its insurance arm Direct Line Group as early as this week. The lender's shares were ahead 11.7p at 264.7p.

Outside the top flight, shares in SuperGroup leapt higher after the Superdry owner eased concerns over recent trading conditions by reporting UK like-for-like sales growth of 1.7% for the 13 weeks to July 29.

It said sales of jackets, gilets and sweatshirts proved that the Superdry range offered a degree of protection against the wet summer weather. Shares were 36p higher at 567p.

Gambling firm Betfair shares were lower despite the company reporting a 13% increase in revenues to £91.6 million in the three months to July 31.

The group, whose exchange allows punters to set their own odds against one another, also reported a 21% increase in sport bets to £72.3 million but investors were not convinced as shares lost 8p to 740p.

The biggest Footsie risers were Royal Bank of Scotland up 11.7p to 264.7p, International Consolidated Airlines Group up 4.9p to 154.8p, Barclays ahead 5.75p to 213.5p and British American Tobacco up 57.5p to 3182p.

The biggest Footsie fallers were Burberry down 287p to 1088p, Kingfisher down 9.4p to 272.3p, Fresnillo off 49p to 1707p and Ashmore Group down 8.7p to 331p.