The FTSE 100 saw an oil stock collapse this afternoon as news of Russia tanks rolling into the Georgian province of South Ossetia hit the city.

The region of the Caucasus is close to the Baku-Tbilisi-Ceyhan pipeline – which runs from the Caspian Sea to the Mediterranean via Turkey and yesterday was hit by an explosion claimed as the responsibility of Kurdish rebels.

At 14:30 BST, the FTSE 100 had fallen 1.4 per cent led by falls for oil firms.

However, the index bounced back to close up 0.21 per cent to 5,489.20.

Over the week the FTSE 100 has risen 2.5 per cent.

On Friday, the travel industry show the greatest gains as traders eye their summer breaks and the oil price fell.

TUI Travel rose 7.71 per cent, Thomas Cook was up 7.72 per cent and British Airways climbed 8.14 per cent.

Builders merchant Wolseley was up 6.32 per cent and Schroders gained 6.36 per cent, despite first half profits falling 28 per cent.

Meanwhile it was the commodity stocks that suffered.

Kazakhmys dropped 6.45 per cent, Ferrexpo fell 5.71 per cent, Xstrata slid 4.90 per cent, Antofagasta slipped 4.85 per cent and Vedanta Resources lost 4.90 per cent.

Outside the FTSE 100, electrical retailer DSG International fell 10.61 per cent after being downgraded from ‘neutral’ from ‘buy’ by UBS.

However, the big story of the day was Royal Bank of Scotland – which reported a £691 million loss.

The bank’s share price responded by rising 3.22 per cent, as the loss was not as severe as the market had expected.

David Jones, chief market strategist at IG Index, said: “There was early relief for investors as the Royal Bank of Scotland posted losses of £691 million – the second-largest deficit ever in the UK, but better than the £1 billion-plus losses expected in its interim results.

“However, poor mining stocks and a broker downgrade for Vodafone, which fell one per cent, pulled the blue-chip index down in early afternoon trading.”

He added the FTSE 100 was now walking a tightrope.

“While there may be a feeling that the worst is behind the banking sector, any meaningful push upwards by investors will surely need to build on this week’s positivity to finally burst the 5500 barrier and begin challenging levels last seen in June,” Mr Jones explained.