Volumes were again low, however, as most investors preferred to remain on the sidelines ahead of a crucial European summit. The FTSE 100 index closed up 76.96 points, or 1.4 per cent, at 5,523.92 points, recapturing the 5,500 level, on trading volume of just 67 per cent of the 90-day daily average.
US blue chips were up 0.6 per cent by London’s close, after both durable goods orders and pending home sales for May beat market expectations, providing hope for the moribund US economy after a run of disappointing data.
Building materials groups CRH and Wolseley saw strong gains following the US data, adding 4.2 per cent and 3.7 per cent respectively, with both heavily exposed to the US housing market.
“We have seen steady inclines ... as US durable goods orders and pending home sales were better than expected although don't be surprised if the rally quickly runs out of steam as investors cautiously lock in some profit in this very nervy trading environment,” said Jordan Lambert, trader at Spreadex.
Investors were mainly focused on the EU summit in Brussels on 28-29 June, although hopes that the meeting will yield any real solution to the Eurozone debt crisis remained low.
German Chancellor Angela Merkel said yesterday that there were no quick or easy solutions to end the debt crisis and leaders should avoid making rash promises they could not keep.
Energy stocks provided the main strength for the FTSE 100 rally as crude prices jumped after the above forecast US data improved the demand picture for commodities.
Miners also recovered from earlier falls in tandem with copper prices following the US data.
Commodities trader Glencore, however, missed out on the rally, losing 1.5 per cent on doubts about its planned $26bn takeover of Xstrata after Qatar’s sovereign wealth fund – Xstrata's second-largest shareholder – asking for better terms.
Xstrata added 1.4 per cent as shareholders bet on whether or not Glencore would consider changing the terms of its deal.
“I would be looking to buy Xstrata stock on weakness this morning. I don’t personally believe that Glencore will walk away,” said Securequity sales trader Jawaid Afsar.
Banks were also strong blue-chip performers, bouncing back after recent sharp falls, led by Lloyds Banking Group, up 3.5 per cent.
Fledgling banking venture NBNK said it had made a new proposal to buy 632 branches from the bank ahead of a scheduled Lloyds board meeting later last night.
Standard Chartered was also in demand, up 3.1 per cent after a reassuring trading update.
Ex-dividend factors accounted for the top blue chip faller, ICAP down four per cent. Tate & Lyle, Next and Compass Group all also traded without entitlement to their latest dividend payout yesterday, clipping 1.59 points overall off the FTSE 100 index.
“Long-only funds are on the sidelines with nowhere for their cash to go. Hedge funds are playing macro themes that don't include equities. Bank prop books are an endangered species, so that only leaves day traders and HFT’s (high frequency traders) to battle it out,” said one London-based trader.