(Close): The FTSE 100 rebounded as further falls in the UK inflation rate offset concerns over the failure of Greek debt talks.

The market had fallen at first after Greece rejected an offer to extend its current bailout.

However, by the end of the day, the FTSE 100 index had risen 41.08 points or 0.6% to close at 6,898.13.

The London market was given a boost by news that CPI inflation had fallen to 0.3% in January, its lowest on record.

Analysts noted that core inflation had risen slightly, suggesting that deflationary pressures are not widespread in the economy.

Elsewhere in Europe, stock markets also recovered from early falls. Germany's Dax and France's Cac 40 index both fell by more than 1% earlier on. But at the close, the Dax was down just 0.25%, while the Cac was up 0.04%.

In London, Royal Mail fell 2.3% after investment bank Morgan Stanley reduced its price target for the stock.

Shares in Intercontinental Hotels Group dropped nearly 1.7% after it reported a 3% drop in full-year operating profits to $651m.

Outside the 100-share index, shares in specialist insurer and reinsurer Brit jumped 11% after Canada's Fairfax Financial Holdings said it had agreed to buy the company for about $1.88bn.

Wood Group shares were up 4.8% after the energy services group reported full-year pre-tax profits of $424.2m, up from $412.3m the year before. Revenues rose 7.8% to $7.62bn.

On the currency markets, the pound fell 0.14% against the dollar to $1.5341 and dropped 0.46% against the euro to €1.3467.