The FTSE 100 regrouped and turned positive on Friday, snapping a nine-day losing streak that was its longest in nine years.
The continued refusal of the German government to countenance using the European Central Bank (ECB) as a lender of last resort has undermined what little confidence remained in the ability of the eurozone's leaders to come to a solution for the sovereign debt crisis.
European indices recovered on Friday as rumours circulated that eurozone member states might drop the requirement for the private sector to participate in a future bailout mechanism.
Many of the FTSE 100's component companies are heavily exposed to the European mainland. With a recession looming across the eurozone and bond markets showing signs that they are trying to price in a possible break-up of the single currency, the risks for the UK remain to the downside.
German bond fields briefly rose above those of UK gilts in intraday trade on Thursday night, suggesting that markets are looking out towards a possible collapse or reduction in size of the single currency area.
The FTSE is also heavily weighted towards the financial services, resources and energy sectors. "They're cyclical, so any downgrade in the outlook for the global economy is going to have an adverse impact on the UK," James Butterfill, an equity strategist at Coutts, said.
UK banks have cut their direct exposure to the eurozone periphery and are well capitalised relative to their European peers, but if there is a liquidity crunch caused by a default in the eurozone, they are unlikely to escape unscathed.
There has been little in the way of good news coming out of the eurozone over the past week. Yields on Italian 10-year bonds have remained above 7% - widely regarded as an unsustainable level - and Portugal saw its sovereign rating cut to junk by Fitch on Thursday.
A German bond auction on Wednesday failed to catch light, with 35% of a €6bn 10-year bund issue left on the shelf, increasing pressure on Germany's government to come up with a solution to save the eurozone. Chinese money has not been forthcoming, and plans to create a leveraged fund have stalled, leaving the ECB as the only immediate answer that the markets can see.
German Chancellor Angela Merkel poured cold water on support for letting the ECB off its leash, and Mario Draghi, the new ECB president, has given little indication that large-scale intervention is on the cards. Without it, or something like it, the FTSE's rally is likely to be short-lived.
"The ECB as a lender of last resort isn't a perfect solution, but it would help matters," Butterfill said.