INVESTORS lost their appetite for risk as doubts remained over progress towards solving the eurozone debt crisis.

The FTSE 100 Index was nearly flat, closing 3.3 points lower at 5395.7, having risen by two per cent yesterday as France and Germany said a response to the debt woes would be finalised by the end of the month.

But European markets came under pressure as questions were raised over the likely success of plans to tackle Europe’s problems, with the Cac-40 in Paris closing lower and the Dax in Germany making modest gains.

Meanwhile, a key vote by law-makers in Slovakia over an expansion of the eurozone’s bailout fund was not held until after the market closed.

There was more economic gloom in the UK, with weak manufacturing data and a gloomy assessment of the recovery from a leading think-tank.

The Office for National Statistics said manufacturing output shrank for the third month in a row in August, fuelling fears of a double-dip recession.

Elsewhere, NIESR said the UK was suffering from the worst economic recovery since the First World War, despite estimating GDP growth for the third quarter of 0.5 per cent, which is higher than many economists’ forecasts.

The pound was hit by the weak manufacturing data and dropped against both the US dollar at 1.55 and the euro at 1.14.

Commodity stocks surrendered some of yesterday’s gains, with Kazakhmys down 3p to 883.5p and Xstrata off 1.2p to 935.9p, while financial services firms Old Mutual and Man Group fell 2.9p to 110.4p and 4.7p to 166.2p respectively.

Lloyds Banking Group bucked the trend by rising 0.6p to 36.3p, while Royal Bank of Scotland was also 0.7p higher at 25.3p.