The FTSE 100 index ended up 30.46 points, or 0.5 per cent at 5,891.21, a closing level not seen since June 2008.
“Volumes remain thin, but the FTSE keeps going up, with oils adding the main fuel today, although whether the 5,900 level can be breached without more momentum is a big question,” said Mic Mills, head of electronic dealing at ETX Capital.
Integrated oils gave the blue chips strength, although the crude price slipped back following strong gains made on Monday after data highlighted continued growth from China.
BP was the biggest FTSE 100 riser, up 3.2 per cent as traders cited vague talk of potential bid interest from Shell, ahead 1.4 per cent. Both companies declined to comment.
BP was also supported by its announcement that it would sell a portfolio of oil and gas assets in Pakistan for $775m (£490.7m), above analysts’ forecasts.
In addition, oil majors were helped by a bullish note from Credit Suisse which raised its oil price forecasts for 2011 and hiked target prices across the sector.
The broker reiterated that BP was its top sector pick.
Among individual blue chip gainers, outsourcing firm Serco gained 2.1 per cent after being selected as preferred bidder for a prison management contract in New Zealand, valued at around £190m.
And Scottish & Southern Energy added 1.2 per cent after newspaper reports revived possible takeover interest in the multi-utility.
Miners were the biggest blue chip fallers, retreating after gains on Monday, with Lonmin shedding 1.1 per cent.
Whitbread, however, was the top FTSE 100 decliner, down 2.8 per cent despite posting strong profit growth. Panmure Gordon downgraded its rating to “hold”, saying it did not expect consensus expectations to be raised.
Tour operator TUI Travel fell 0.6 per cent as its German parent company TUI posted full-year results, and as JPMorgan Cazenove cut targets for both TUI Travel and mid-cap peer Thomas Cook, down 0.9 per cent.
Elsewhere on the second line, housebuilders provided the main support led by Persimmon and Redrow, up five and four per cent respectively, after a survey said the decline in house prices in England and Wales was at a slower pace in November than analysts had expected.
British consumer price inflation, however, rose unexpectedly to a six-month high of 3.3 per cent in November, which could increase the pressure on the Bank of England to raise interest rates.
Analysts expected no surprises after the markets closed from the US Federal Reserve Open Market Committee, with sentiment towards the panel’s decision making little impact on UK trading.
US blue chips were up 0.6 per cent by London's close supported by stronger than expected US retail sales data.