Banking shares helped fuel rises on the FTSE 100 in early trading as reports in Italy suggested that the beleaguered country is to receive an aid package from the international Monetary Fund (IMF).
The package would help shore up Italy's finances by up to €600bn (£515.8bn), newspaper La Stampa said. But the IMF distanced itself from the report.
Adding to the more positive mood was news that Germany and France were looking at ways to fiscally integrate countries in the Eurozone, which could make it easier for the European Central Bank to make bond purchases.
However the sovereign debt crisis was still casting a shadow with Moody's warning that the credit standing of all European government bond ratings could be threatened by continuing economic uncertainty.
On London's blue chip index RBS was up just over five per cent, while Lloyds and Barclays both put on 4.7 per cent.
The gains were mirrored in Europe where BNP Paribas was up 5.6 per cent and UniCredit up three per cent.
Engineer Weir group was another significant gainer on the FTSE, up more than five per cent.
The mining sector was relatively subdued after Rio Tinto warned about global growth as consumers come under pressure.
However, Kazakhmys was one of the highest climbers in early trading, nudging up by more than four per cent.
Rolls-Royce was up 2.5 per cent after the company announced that a deal had been sealed with its pension trustees.
On the FTSE 250 Thomas Cook shares surged by 30 per cent after the company announced that it had been guaranteed new funding from its banks, amid a period of choppy trading.
There were few fallers on the FTSE 100 with miner Randgold Resources, down more than four per cent, the main loser.
The fall followed its announcement of production problems at its Tongon mine in Côte d'Ivoire.
Meanwhile in Asia the Nikkei closed up 1.5 per cent and the Hang Seng 1.9 per cent, fuelled by renewed hopes of a Eurozone recovery.
In domestic economic news Britain plans to pump £25bn into infrastructure projects, part funded by private investment from pension funds, to help bolster its economy, Treasury Minister Danny Alexander said today.
He said an agreement had already been signed with the big British pension funds to pump £20bn into projects such as roads and railways.