The blue chip FTSE 100 closed 22.16 points higher at 5,522.50, its highest close since 2 September 2008 -- the month when Lehman Brothers collapsed. It had also hit a 16-month closing high on Monday.
BARCLAYS LIFTS BANKS
Barclays gained 6.2 per cent, with traders citing market talk that the lender could lift its outlook. Lloyds Banking Group, HSBC and Standard Chartered were up 1.4 to 3.4 per cent.
Meanwhile Royal Bank of Scotland, the worst-performing FTSE 100 stock in 2009, rose 10.3 per cent to the top of the gainers’ list.
Man Group climbed 4.1 per cent after Nomura issued an upbeat note on the speciality finance sector, advocating a “buy” on the hedge fund group.
Miners were in positive territory, with investors still heartened by Monday’s strong manufacturing data from China, although base metals prices were largely lower.
Xstrata, Rio Tinto, Lonmin and Eurasian Natural Resources rose 1 to 2.2 per cent.
Energy stocks were also in favour as the price of crude oil edged up towards $82 a barrel. Royal Dutch Shell, BP and BG Group added 0.3 to 1.1 per cent.
ALL EYES ON US PAYROLL DATA
Investors are seen keenly awaiting December's US non-farm payrolls numbers on Friday, which are expected to provide an indication of the health of the economy and could give further direction to equities.
“The US non-farm payrolls will be the big cue. Volumes still haven’t returned to normal and I would imagine that people will be waiting for that and from next week on you'll see proper volume returning to the market,” said Arifa Sheikh-Usmani, equity trader at Spreadex.
Earlier, data showed a bigger-than-expected fall in pending sales of previously owned US homes, which dipped 16 per cent in November.
VACCINE DEMAND WORRIES
Drugmakers were pressured after France cancelled over half the H1N1 flu shots it had ordered from Sanofi-Aventis, GlaxoSmithKline, Novartis and Baxter International due to over-supply.
GlaxoSmithKline dropped 2.4 per cent, while AstraZeneca and Shire lost 1.1 and 0.8 per cent respectively.
BUFFETT HITS CADBURY
Among individual stocks, Cadbury shed 3.2 per cent. Warren Buffett’s Berkshire Hathaway, which owns 9.4 per cent of Kraft Foods, said it had voted “no” to Kraft’s proposal to issue up to 370m new Kraft shares to help fund a Cadbury takeover.
Earlier, Kraft said it was raising the cash portion of its hostile £10bn takeover offer for the British confectioner by 60p per share, funded by a deal to sell its North American pizza unit to Swiss food giant Nestle.
Next fell 1.8 per cent after the fashion chain warned 2010-11 profits could be flat, even as it upgraded 2009-10 forecasts after a solid Christmas.
Marks & Spencer, which is due to issue a trading update this morning, dropped 1.8 per cent, while Home Retail and Kingfisher lost 1.9 and 1.3 per cent.