The FTSE 100 closed 1.4 per cent up, at 6,673 points, as hopes rose of a deal between Greece and its lenders on the €13bn (£9.4bn) bailout proposals it presented last night, ahead of a meeting between the Eurogroup of finance ministers scheduled for tomorrow.
In the US, the Dow Jones was 1.1 per cent higher in late morning trading, while the S&P 500 rose 1.1 per cent.
The euro was up one per cent against the dollar, over $1.11, on hopes Greece might reach an eleventh-hour deal with its creditors to unlock an aid package for the country, which would stave off a Greek exit from the euro for another three years.
Early indications suggested the new proposals included major reforms on taxation for shipping companies, tax breaks for the Greek islands and VAT for restaurants, as well as privatisations.
Eurozone finance ministers are due to meet tomorrow afternoon to scrutinise the plans. There were suggestions that if the outcome of the meeting is positive, it may eliminate the need for European leaders to get together on Sunday.
But Greek Prime Minister Alexis Tsipras has come under fire for capitulating to creditors' demands. Many of the proposals outlined in the deal are similar to what was originally being demanded by creditors when they were negotiating over a €7bn tranche of bailout money. Greeks made their displeasure at further austerity heard with a resounding "no" vote in last week's referendum - so Tsipras could face difficulties having the new measures approved.
"It is a strange turn of events considering the resounding 'no' cried out by the Greek people to austerity," said Connor Campbell, financial analyst at Spreadex.
"There is still more work for Tsipras to do, and in many ways the most difficult task lies ahead; the Greek PM now has to try and convince his government this Friday to back the €13bn plan, one that seemingly flies in the face of the anti-austerity rhetoric that has been Syriza’s bread and butter since before the party was elected."
Today's market rally came after China's Shanghai Composite finished the day 4.5 per cent up, its second day of rallies after shares lost almost 30 per cent of value over the past month.
The session was its best since 2009, meaning the benchmark has delivered its "biggest two-day gain since 2008, thanks to inordinate government and regulatory intervention aimed at offsetting what has become an equity market rout following a bubble bust", said Accendo Markets' Mike van Dulken.