Uncertainty over whether US political rivals will agree a crucial spending and taxation deal drove a volatile run on the London market yesterday.

Fears that the US risks slipping into recession if hundreds of billions of dollars in expiring tax cuts and automatic spending reductions are allowed to take effect saw the FTSE-100 index close 2.41 points lower at 5767.27.

London's leading shares index swung in and out of the red as optimism over the likelihood of Democrats and Republicans striking a deal ahead of the January 1 fiscal cliff deadline wavered.

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Meanwhile, the mood was dampened by figures on Japan's economy, which shrank 0.9% in the third quarter and now looks likely to go into recession in the final three months of the year.

The pound fell against the US dollar to 1.58 as the greenback benefited from its perceived status as a safe-haven investment amid times of uncertainty. Sterling also dropped against the euro to 1.24 as the single currency was boosted after Greece approved its 2013 austerity budget.

Banks were among the stronger performers in the top flight, with Barclays ahead 4.8p to 234.9p, Royal Bank of Scotland 4.4p higher at 274.5p and Lloyds Banking Group up 1.5p to 45.1p.

Elsewhere on the risers board, Confused.com owner Admiral continued to benefit from a broker upgrade on Friday, to stand 4%, or 38p, higher at 1092p.

Security services firm G4S featured highly on the fallers board, down 4.7p to 248.7p, as it suffered more fall-out from its failure to land the latest round of contracts to operate prisons in the UK. Serco was also lower, down 3.5p to 551p.

Outside the top flight, the focus was on the housebuilding sector. Bovis Homes fared well for a while, lifting 2% after it said it remained on track to report a strong increase in revenues in 2012.

However, its shares were later 9p lower at 506.5p, while Taylor Wimpey was marginally down at 58.75p and Redrow fell 2p to 156.6p.

In corporate results, logistics firm Wincanton reported a return to half-year profit and said it had clinched deals with B&Q and Morrisons. The shares rose 1.5p to 76.5p.

But Dorset-based defence and aerospace firm Cobham, saw shares drop 20.4p to190.6p.

Among the biggest Footsie risers were Polymetal up 35p at 1149p and Burberry ahead 30p at 1247p.

The biggest fallers were Anglo American down 38.5p at 1827.5p, Amec down 19p at 1030p and BG Group off 16.5p at 1040.5p.