European shares and the single currency rose after positive comments on the region's outlook from the European Central Bank and the success of Spain's bond auction yesterday.
Meanwhile Italy launched a €4.75bn bond auction today. The country sold bonds maturing in November 2014 at yields of 4.83 per cent, down from 5.62 per cent it paid a fortnight ago.
The euro rose 0.4 per cent to $1.2859, having climbed to as high as $1.2879 in Asian trading, and pulling further away from a 16-month low near $1.2662 hit earlier in the week.
The FTSEurofirst 300 index of top European shares was up 0.7 per cent.
Banks were the main gainers across Europe early on, with the STOXX Europe 600 Bank index up 1.6 per cent.
Investors were also waiting for results from JPMorgan Chase later, the first of the US lenders to post fourth-quarter earnings.
RBS, up 6.3 per cent, was the highest climber on London's blue chip index. The stock has risen after the company announced extensive cost cutting measures including the slashing of 3,500 jobs.
Analysts at Seymour Pierce upgraded the lender to "buy" from "reduce".
Barclays was up 3.9 per cent while Lloyds lifted by 2.8 per cent.
Miner Vedanta was up 2.3 per cent with engineer IMI up by a similar level.
In the telecom sector, BT Group gained 1.3, after Nomura double upgraded BT to "buy" from "reduce".
On the downside retailer Tesco dropped another 1.3 per cent after yesterday reporting slowing sales and a grim profit outlook. UBS cut the British food retailer to "neutral from "buy", while Credit Suisse downgraded the retailer to "neutral" from "outperform".
British business supplies distributor Bunzl slipped 0.7 per cent as UBS cut its rating on the firm to "neutral" from "buy", and chip designer ARM Holding was off 0.4 per cent as investors continued to worry over its outlook given the competition on smart phones and tablets from Intel.
Pharmaceuticals giant GlaxoSmithKline edged down by 0.8 per cent.
On the FTSE All-share fashion retailer Ted Baker rose more than five per cent after bucking the retail gloom and posting strong results for Christmas.
In Asia the Nikkei closed up 1.3 per cent and the Hang Seng 0.5 per cent.
On the data front, factory gate inflation in Britain weakened more than expected in December, boosting expectations that the Bank of England will pump more money into the economy next month.
According to official figures, producer output prices dropped 0.2 per cent on the month, taking the annual rate to 4.8 per cent, the lowest since December 2010. Oil prices rose at the slowest rate since November 2010 and chemical import costs also eased.