The FTSE 100 reversed early losses on Tuesday as fresh tensions in the Middle East saw investors return to beleaguered mining stocks on the prospect of more stable commodity prices.

The market initially fell after four gunmen attacked the U.S. embassy in Damascus on Tuesday, but the gunmen were all killed before any American diplomats were harmed. Meanwhile, Palestinian gunmen fought battles with Israeli troops inside the Gaza Strip, with Al Jazeera television reporting one soldier had been killed.

Miners led the index down on Monday but have reversed some of those losses as geo political tensions make some investors bet on a rebound in commodity prices, said one trader. Miners Vedanta, Anglo American, BHP Billiton and Rio Tinto were all up, though smaller mining companies such as Antofagasta and Kazakhmys extended Monday's losses. The bounce is benefiting the blue chips more than some of the smaller stocks, as copper prices are still actually near their lows.

Royal Dutch Shell was down 1 percent despite firmer crude oil prices as investors continued to bet strong OPEC production would see oil prices fall further, if Middle Eastern tensions abate. BP outperformed its rival, rising 0.1 percent after announcing it would be able to restart 105,000 barrels per day of production from the eastern side of Prudhoe Bay within a few weeks after Alaska regulators approved the oil major's plan to connect the field to the nearby Endicott pipeline.

By 11:36 a.m., the FTSE 100 was up 4.2 points, or 0.1 percent, at 5,855.0 points, having fallen as low as 5,824.2.

The market brushed 5,860.6 before CPI numbers showed Britain's inflation rate picked up more than expected in August to 2.5 percent, reinforcing expectations of tighter monetary policy. The CPI numbers will re ignite speculation about the Bank of England raising rates by the end of the year, said strategist Michael O'Sullivan of State Street Global Markets.

ITV SUFFERS

ITV shed 3.5 percent after Investec Securities issued a negative outlook on the stock, citing continued revenue pressures.

Utility Drax, which owns Europe's largest coal-fired power station, fell 2.5 percent despite saying first half earnings had more than tripled after wholesale electricity prices continued to soar. Analysts were looking for a slightly bigger rise.

Elsewhere among the losers, PartyGaming lost 1.4 percent as investors continued to eye the gaming sector nervously in the wake of last week's arrest of the Sportingbet chairman amid a crackdown on Internet gaming in the U.S.

Cruise operator Carnival led the gainers, rising 3.1 percent. People are buying Carnival because it is trading well off its highs and they see a lot of value. As a cruising company it is also benefiting from the fact that there are fewer hurricanes than expected, said one market maker.

BAE Systems rose 1.5 percent after setting October 4 as the date for an extraordinary general meeting for shareholders to vote on the proposed sale of its 20 percent stake in planemaker Airbus.

And Britain's largest software company Sage rose after positive moves from U.S. competitors during Monday trading. Sage is probably on the move given strong interest in techs in the U.S, said a second trader. Investors are sniffing around the sector, and in the light volumes we are trading any interest in a company can translate into a headline move.

Steelmaker Corus < CS.L> reversed Monday's losses as investors took advantage of the cheaper prices.

Demand for steel has not diminished in any way shape or form this year, said Neil Parker, strategist at the Royal Bank of Scotland. The Chinese are continuing to increase their demand for steel because of all the infrastructure projects that they've got. So a lot of the raw material suppliers are going to do well because the demand from the far East is still extremely dynamic.

Among the mid caps, aerospace and defence engineering firm Cobham Plc rose 1.5 percent after posting a 12.7 percent rise in underlying earnings before tax and said disposals had left it well prepared for fresh acquisitions, while engineering firm Charter Plc climbed 5.1 percent after reporting a 55 percent rise in first half profit on strong sales in Europe and North America and saying its full year results would better previous expectations.

But medical equipment maker Gyrus fell 4.8 percent despite first half adjusted earnings coming in at the top end of forecasts on Tuesday. The company was optimistic about the full year but it noted the negative impact of a weaker dollar. Volumes should pick up as we get further into September, said State Street's O'Sullivan. There is production and inflation data out of the U.S. before the end of the week while we're starting to get into the flow of the reporting season.

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