The UK benchmark ended up 22.56 points, or 0.5 per cent, at 5,089.37, having vacillated sharply between positive and negative territory – from an early session low of 4,974.03 to a peak of 5,148.81.
The outlines of a Eurozone rescue plan gave the market cause for cheer, but with little in the way of tangible detail, traders said further volatility most likely lay in store.
Banks added most points to the index, led by Barclays, up 6.8 per cent, while part state-owned lenders Lloyds Banking Group and Royal Bank of Scotland both ended the session 3.2 per cent ahead.
At the weekend, European leaders were reported to be working on new ways to stop the fallout from the Eurozone sovereign debt crisis exacting more damage on the world economy.
EU leaders, under pressure from tumbling markets, might agree on bolder steps to ring fence heavily indebted Greece, Portugal and Ireland.
“I think what’s been talked about so far seems to have raised more questions than answers,” Joshua Raymond, market strategist at City Index, said.
“Whilst certainly investors are looking for any excuse to try and buy into a market that’s been very sharply sold, I think they’re questioning a little bit what’s to come.”
Eurozone officials played down reports yesterday of emerging plans to halve Greece’s debts and recapitalise European banks to cope with the fallout, stressing that no such scheme is yet on the table.
Life insurers also got a boost from the Eurozone debt hopes which should boost equity markets insurers’ underlying assets, with Aviva and Legal & General both 6.4 per cent firmer.
“We shouldn’t kid ourselves that this means we’re through the worst,” David Jones, chief market strategist at IG Index, said.
“The worry is, if we don’t get any definite concrete plan to add to the talk over the weekend, we could well see the rug pulled out from underneath this rally.”
Precious metals miners were among the biggest FTSE 100 fallers, with Fresnillo and Randgold Resources down 6.9 per cent and 2.8 per cent respectively, as the gold price fell sharply.
Other miners suffered after copper prices dropped to 14-month lows as fears of a renewed global recession raised worries over falling demand.
Kazakhmys and Vedanta Resources were both left nursing falls of 3.9 percent.
JPMorgan Cazenove sees a further 10-15 per cent downside risk for UK miners with equity and commodity prices moving in tandem, though it thinks that stronger balance sheets should support valuations above 2008/09 levels.
Integrated oils were also weaker as a sector, with Royal Dutch Shell down 1.5 per cent.
In Europe, the STOXX Europe 600 Banks index and Insurance index led sectoral gainers, up 3.8 per cent and 6.4 per cent respectively, with Italian banks including Intesa Saopaolo, up 8.3 per cent, among the top gainers.