At the close, the FTSE 100 was up 24.12 points or 0.5 per cent at 5,418.65, after battling around the psychologically important 5,400 level, having rallied more than five per cent over the past two sessions.
Recently beaten-down banks provided the main bright spots, with Royal Bank of Scotland, Lloyds Banking Group and Barclays up 5.6 per cent to 8.2 per cent as investors reacted positively to reports of delays to proposed banking reforms.
Wealth manager Hargreaves Lansdown was the top FTSE gainer, however, up 17.7 per cent after its full-year results showed assets under administration rose by more than expected. This in turn prompted Numis Securities to raise its estimates, target price and rating for the stock.
US blue chips were 0.1 per cent higher by London’s close, in choppy morning trade supported by the higher than expected US August ISM manufacturing reading.
“Such news doesn’t bode well for proponents of QE3 and the lifeboat full of cheap money that accompanies it, although it is once again a reminder that things perhaps aren’t quite as bad as the doomsayers may on occasion make out,” said Will Hedden, sales trader at IG Index.
The market rally over the past few sessions has been fuelled by hopes a Federal Reserve meeting in September could green-light a third programme of quantitative easing to aid the fragile US economic recovery.
The run of downbeat domestic economic data continued as British manufacturing activity shrank at its fastest pace in over two years in August.
Miners were among the top blue chip fallers, tracking weaker copper prices which were weighed by weak export orders from big metal consumer China, and as investors locked in recent gains, with the sector having led the blue chip rally on Wednesday.
Precious metals miners also fell back as the gold price eased, with Fresnillo the top blue chip faller, down 3.7 per cent, while Randgold Resources lost 1.4 per cent impacted by an Oriel Securities downgrade.
Integrated oil was the worst performing blue chip sector, hit by a big fall from BP, off 3.5 per cent.
BP was knocked by worries about the future for its operations in Russia, after a raid on the firm’s Moscow office on Wednesday highlighted its vulnerability in that oil-rich country, as well as by concerns over a tropical storm developing in the Gulf of Mexico, a year on from a devastating oil spill.
Among individual stocks, ITV shed 2.5 per cent as Nomura downgraded its rating for the UK broadcaster to “neutral” from “buy”, cutting its target price to 75p from 105p, in a review of the media sector.
Technical analyst Bill McNamara at Charles Stanley remained cautious on the outlook for the FTSE 100 index.
“There is still not enough evidence to suggest that the market has found a short-term bottom, let alone a lasting one. Heading into September there are still compelling reasons for investors to be viewing equities with extreme caution.”