By David Brett
LONDON (Reuters) - The leading share index edged lower in mid-session trade on Friday as oil producers and drugmakers slipped, while Barclays <BARC.L> led banks higher on reports it was in talks to sell asset management business BGI.
By 11:46 a.m., the FTSE 100 <.FTSE> was down 2.14 points, or 0.05 percent at 4,360.31, after rising 0.7 percent on Thursday to snap a three-day losing run.
The UK benchmark is down 1.5 percent for the year but has rallied 26 percent since hitting a six-year low on March 9.
"The recovery rally is over and we're now seeing the market settling down. More uncertainty as the general newsflow this week has been negative. The green shoots of recovery have a touch of frost on them," said Howard Wheeldon, senior strategist at BGC Partners.
Oil producers were the top sectoral loser as crude fell 40 cents. BP <BP.L> and Royal Dutch Shell <RDSa.L> slipped 0.8 percent and 1 percent, respectively.
Drugmakers also retreated, with AstraZeneca <AZN.L> losing 1 percent, GlaxoSmithKline <GSK.L> down 1.1 percent and Shire <SHP.L> off 1.1 percent.
Barclays <BARC.L> surged 8.2 percent after a source familiar with the matter said the lender was in talks to sell its asset management arm, Barclays Global Investors.
The Financial Times reported that Barclays was in talks to sell the business for up to $10 billion (6.5 billion pounds) to potential bidders including U.S. money manager BlackRock <BLK.N>.
Barclays and BlackRock declined to comment.
"Selling off an asset like that rather makes you worry what might be beneath the bonnet," said David Morrison, market strategist at GFT Global Markets. .
Within the banking sector, HSBC <HSBA.L>, Royal Bank of Scotland <RBS.L>, Lloyds Banking Group <LLOY.L> and Standard Chartered <STAN.L> advanced 1.2 percent to 5.6 percent.
Investors also looked ahead to U.S. consumer prices for April, due at 1230 GMT, and industrial production data, due at 1315 GMT, which will provide a further gauge to the state of the world's largest economy.
The euro zone economy shrank more than expected in the first quarter, led by a drop in output in Germany.
"It's no surprise. These figures are going to be bad. Where ever we look there isn't a nation that's not been affected by the downturn. It's about countries working on a strategy together to build a way out," said Wheeldon.
The European Union's statistics office Eurostat said on Friday the gross domestic product economy of the 16 countries using the euro shrank 2.5 percent quarter-on-quarter for a 4.6 percent contraction year-on-year -- the worst on record.
Japanese machinery orders fell in March, showing companies remained reluctant to spend despite signs that recession may have hit bottom.
Rio Tinto <RIO.L> gained 3.2 percent after the miner said it remained committed to a planned $19.5 billion tie-up with Chinese metals firm Chinalco, responding to talk that the deal may be revised to let more shareholders take part in a rights issue.
Within the sector, BHP Billiton <BLT.L>, Anglo American <AAL.L>, Xstrata <XTA.L>, Kazakhmys <KAZ.L>, Lonmin <LMI.L> and Antofagasta <ANTO.L> put on between 0.8 percent and 4.3 percent.
Engineer Invensys <ISYS.L> rose 2.8 percent, extending Thursday's 13 percent rise after beating expectations on operating profit and resuming the payment of a final dividend.
Both JPMorgan and Citigroup raised their price targets on the stock.
Thomas Cook <TCG.L> shed 0.6 percent after losing 7.3 percent in the previous session. Its parent Arcandor <AROG.DE> was set to ask the German government for up to 700 million euros (625.8 million pounds) in loan guarantees, financial sources close to the matter said on Thursday.
(Editing by Mike Nesbit)