Sterling has slipped back to near 31-year lows after a wider market recovery earlier helped it make modest gains.

The pound fell 0.13% against the dollar to $1.2914 after having earlier risen above $1.30.

The gains for sterling - which is still 0.3% higher against the euro - had come in tandem with widespread increases on European stock markets.

London's FTSE 100 share index rose more than 1% on Thursday to 6,534, although trading on Wall Street has been choppy.

The FTSE 250 of mid-cap UK firms finished 1.5% higher, while stocks in Paris, Frankfurt and Madrid made modest gains.

In the US, trading was muted. The Dow Jones index dipped 0.1% to 17,895.88 but the Nasdaq edged 0.4% higher to close at 4,876.81.

In other developments:

The OECD warned the UK's decision to leave the EU could result in a 3% loss of economic output by 2020.

Minutes from the European Central Bank's meeting in early June showed it felt the impact from Brexit could be "significant" and have "negative spillovers" for the eurozone.

Italian bank shares continued to oscillate over concerns the banks do not have enough reserves to handle $389bn (£300bn; €350bn) of bad loans.

Rate cut

"Europe's markets have enjoyed a much better time of it today with the FTSE 100 once again outperforming due to a rebound in some of the bigger fallers over the past few days," said Michael Hewson of CMC Markets.

Banks and building stocks, which have been hit hard by the EU referendum result, were among the big winners on the FTSE.

Provident Financial rose 8% and RBS gained 6.5%, while house builder Taylor Wimpey shares increased 5.4%.

Image copyright AFP/Getty Images Image caption Investors are betting Bank of England governor Mark Carney and his team will cut interest rates from 0.5% on 14 July

Bank fears

Despite a sharp sell-off after the Brexit vote, the FTSE 100 is up more than 3% since its close on 23 June. However, it is down around 10% in dollar terms as the slump in sterling has reduced the dollar value of the market.

Sterling has fallen 13% from the high of $1.50 seen before the referendum result - when investors bet heavily on a win for Remain - to lows not seen since 1985.

While there were some tentative signs of recovery in riskier assets on Thursday, investors were still on edge over the fallout from the Brexit vote which helped extend a rally in gold prices.

The precious metal is trading near its highest price in more than two years. Gold tends to perform well when investors are worried about the performance of riskier assets like equities.

Image copyright PA

Retail

In a busy company announcement session, shares in Marks and Spencer finished 1.6% higher, having earlier been among the biggest fallers after it reported a steep fall in sales.

AB Foods, owners of Primark, saw shares rise 8.9% to be the biggest gainer on the FTSE.

The firm said it was sticking to plans to expand its Primark chain across Europe and the US, and was optimistic about continued growth despite uncertainty created by the Brexit vote.

Sports Direct shares rose 1.8% despite bad publicity about the retailer's working conditions prompting a heavy fall in annual profits.

Fed cautious

Late on Wednesday, the latest Federal Reserve minutes were released, showing that prospects of an interest rate hike have diminished.

This soothed investors who had feared that a rise in interest rates may hinder prospects for economic growth.

The US central bank's last meeting in June took place before the UK's EU referendum.

However, policymakers were concerned the vote would heighten global market uncertainty and potentially hurt the US economic outlook.