THE pound gained ground as worries over Theresa May's leadership subsided amid rumours of a cabinet reshuffle.

Sterling rose nearly 0.8 per cent against the US dollar around midday, but settled closer to 0.5 per cent higher in afternoon trading at 1.312.

Versus the euro, the pound was up 0.4 per cent at 1.117.

It follows a difficult few days for the pound, which tumbled to near four-and-a-half week lows on Friday following reports of a Tory plot to topple the Prime Minister.

David Madden, a market analyst at CMC Markets UK, said: "GBP/USD gained ground today after Theresa May hinted at a possible cabinet reshuffle to get the party into line.

"The pound sold-off last week as there were growing rumours of a possible leadership challenge, and the talk of a re-jig to her team has injected some much needed optimism into the pound.

"Sterling was also helped by pull-backs in the greenback as it was hit by profit taking. There were many aspects of last week's US non-farm payrolls report that were very positive for the US dollar."

The UK currency's gains weighed on the FTSE 100, as many of its listed components tend to benefit when foreign currencies are stronger.

London's blue chip index ended the day down 0.2 per cent or 14.98 points at 7,507.89.

It fell behind its European peers, with the French Cac 40 and German Dax closing higher by 0.1per cent and 0.16 per cent, respectively.

Brent crude prices edged higher by 0.2 per cent to $55.59 per barrel following comments by Opec suggesting that "extraordinary" measures may be needed to rebalance the oil market.

Mr Madden said: "The oil-producing group has a track record of talking tough, and not always delivering so traders aren't overly fearful of any sudden change to supply.

"Adding to that, the cartel often has trouble reaching a policy that can be agreed upon by all its members, so this could be the beginning of talks about a possible shift in policy."

In UK stocks, Wood Group dropped 7.5p to 722.5p as it announced the formal completion of its £2.2 billion takeover of Amec Foster Wheeler, having agreed to offload the majority of its North Sea operations in order to address competition concerns.

Shares in Petra Diamonds tumbled 4.5p to 79p amid warnings that the company is at risk of breaching its loans terms this year. The announcement comes nearly a month after the company was forced to suspend operations in its Tanzanian mine following a government probe into the diamond market.

Revolution Bars shares rose 4p to 211p. It comes after the company rejected a merger offer from Britain's biggest nightclub operator Deltic, saying it would prefer a cash offer.

Trinity Mirror fell 4.25p to 79p after the Daily Mirror publisher posted an eight per cent drop in third quarter like-for-like sales amid lower revenues from print advertising and circulation.

Millennium & Copthorne shares rose 105p to 560p, taking it to the top of the FTSE 250. The hotels group on Monday agreed to a possible takeover offer from majority shareholder City Developments that would value the business at nearly £1.8 billion.

The biggest risers on the FTSE 100 were Reckitt Benckiser up 102p at 6,038p, Admiral Group up 22p at 1,875p, Associated British Foods up 33p at 3,305p, and Randgold Resources up 70p to 7,500p.

The biggest fallers on the FTSE 100 were Anglo American down 50p to 1,431p, Rio Tinto down 83p at 3,627p, EasyJet down 27p at 1,236p, and Antofagasta down 16.5p to 981p.