Markets were back on the front foot as the FTSE 100 Index edged into positive territory following big losses in its previous two sessions.

London's top-flight closed 21.7 points higher, at 6572.3, having fallen to a five-week low on the back of triple-digit declines on Friday and Monday.

The slump has been driven by fears of a new emerging markets rout as US policymakers start to withdraw monetary support.

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The availability of "easy money" in the US has seen investors ploughing cash into fast-growing emerging markets to seek better returns.

Prospects for the UK economy also occupied investors after the Office for National Statistics said output grew by 0.7% in the final quarter of the year and by 1.9% across the year as a whole - the best performance since 2007.

But the figures failed to provide much support for the pound , particularly as the latest growth estimate was slightly lower than the rate of 0.8% seen in the previous two periods. Sterling was flat at 1.66 US dollars and 1.21 euros.

Meanwhile, bourses in France and Germany rallied strongly.

Royal Bank of Scotland shares rallied 11.7p to 343.9p on its announcement that it will have to set aside more than £3 billion to cover litigation and customer compensation claims.

The update had prompted a number of City houses, including Deutsche Bank and Citi, to retain their sell recommendations on the NatWest owner, but it recovered amid a good performance from wider banking stocks.

Barclays improved 4p to 273.3p and Lloyds Banking Group was ahead 2.4p to 82.8p.

It came as Lloyds announced it was to shed a further 1080 jobs across its banking divisions with another 300 posts being outsourced.

Meanwhile it was reported that Barclays was planning more job losses in its investment banking arm.

Carpetright shares were 2% lower after it warned over profits for the second time in less than four months.

It saw UK like-for-like sales rise 1.9% in its third quarter to January 25, but it was nursing losses in its overseas division. Shares were off 13p to 555p.

F&C Asset Management rose for a second session in a row after it received a £708m takeover bid by Canada's Bank of Montreal.

The FTSE 250 company confirmed on Monday it was in advanced talks with the bank, which sent shares surging by 25%. The stock was 7.1p higher at 123.5p, slightly higher than the offer price.

The biggest FTSE 100 risers were Severn Trent up 78p to 1778p, Hargreaves Lansdown up 56p to 1485p, Royal Bank of Scotland up 11.7p to 343.9p and Royal Mail up 19.5p to 578.5p.

The biggest fallers were Fresnillo, down 24p to 751p, BG Group down 28.5p to 1053.5p, Tullow Oil down 14p to 829.5p and Imperial Tobacco down 35p to 2217p.