A fresh wave of Brexit optimism pushed the value of the pound higher and boosted shares in UK-focused firms.
The FTSE 100 closed 1.81 points lower at 7,211.64 at the end of trading on Tuesday.
Rumours that UK and EU negotiators are closing in on a draft Brexit deal were cheered by traders, pushing sterling higher.
Neil Wilson, chief market analyst at Markets.com, said: "Sterling jumped to its strongest in four months against the US dollar and cleared a big technical level as reports said UK and EU negotiators are closing in on a draft Brexit deal.
"Sterling against the dollar has jumped above its 200-day moving average for the first time since May. If this holds, it's looking promising for bulls - but holding the level depends entirely on the outcome of these talks."
The pound was 0.86% up versus the US dollar at 1.273, and up 0.75% against the euro at 1.153.
The FTSE 250 jumped higher as its significant proportion of UK-focused firms meant it was buoyed by market optimism surrounding Brexit, while the FTSE 100 dipped marginally.
Hopes of a Brexit deal washed away concerns over worse-than-expected jobs data from the ONS, which revealed the sharpest decline in UK employment for more than five years.
The European markets jumped higher as traders welcomed positive reports over both Brexit and the US-China trade war.
The German Dax increased by 1.15% while the French Cac moved 1.05% higher.
The Dow Jones shrugged off the downgrade of economic conditions by the IMF to move higher as traders became more optimistic about trade tensions with China.
In company news, shares in Neil Woodford's listed trust, Woodford Patient Capital Trust, dived after it was revealed that the stock-picker's Equity Income Fund is set to be wound up.
Mr Woodford has been dumped from any involvement with the fund while investors have been told they cannot expect to see their money returned until at least January.
Shares in Woodford Patient Capital Trust slid 3.25p to 34.4p.
Shares in recruiter Hays rebounded after the company told investors that it managed to keep net fees stable in the face of a difficult UK private sector.
The company saw shares jump 11.7p to 155.4p at the close of trading.
House-builder Bellway saw shares dip after it said it will focus less on London as better opportunities elsewhere in the country push down the capital's pull.
Shares in Bellway dropped by 122p to 3,370p on Tuesday.
Elsewhere, pub group and brewer Marston's declined after weaker food sales weighed down on the group's annual profits. Shares in the business fell 9p to 113p.
The price of oil moved marginally higher as it remained subdued on the back of poor Chinese producer price index (PPI) data.
The price of a barrel of Brent crude oil increased by 0.17% to 59.30 US dollars.
The biggest risers on the FTSE 100 were Land Securities, up 54.2p at 946p, British Land, up 32.2p at 623p, Auto Trader, up 27.8p at 550.4p, and United Utilities, up 43.2p at 865.4p.
The biggest fallers on the index were Fresnillo, down 23.8p at 610.6p, Evraz, down 13.7p at 404p, Reckitt Benckiser, down 153p at 5,940p and RELX, down 44p at 1,772.5p.
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