The FTSE 100 rose 28.77 points, or 0.5 per cent, to 6,416.14 points, having extended gains in the afternoon after better-than-expected jobless claims data from the United States.
Recent US labour data had been disappointing, sending the FTSE to a two-month low last Friday. Traders said investors were buying on market dips on expectations that the US Federal Reserve keep its economic stimulus programme going.
The FTSE is up 2.7 per cent since last Friday, setting it on track for its best weekly percentage since January.
“The underlying trend is positive but it’s going to be punctuated by moments of panic,” said Derek Hammond, head of institutional equity sales at Societe Generale.
“Those moments of panic are opportunities for those who have missed the preceding rally to reinforce (their positions). Over the medium term you’re going to see continuous upside pressure in the equities space.”
By driving down returns on bonds and cash, the Fed’s asset buying programme has been seen as a key driver of a 16.5 per cent rally in the FTSE from November to March.
Hammond said financial shares were in demand as investors looked for relatively cheap shares that tend to outperform a rising market.
Trading at 0.9 times their book value, banks were the cheapest stock in Britain, data showed.
Financial shares were the biggest boost to the FTSE yesterday, adding 6.4 index points.
They were led by asset managers Schroders and Aberdeen, boosted by stellar inflows numbers from peer Ashmore Group.
Shares in broader-listed Ashmore rose 13 per cent in volume five times their average for the past 90 days.
Topping the FTSE 100 was Mark & Spencer, which rose 4.3 per cent in volume twice its average after the retail chain posted a smaller-than-expected fall in quarterly sales.
Also supporting sentiment was data showing greater-than-expected money supply growth in China, a key importer of consumer goods and especially luxury products.
Shares in premium brand Burberry rose three per cent.
Basic resources stocks curbed gains on the FTSE, shaving off six index points as the sector succumbed to a bout of profit taking after a 4.8 per cent gain in the previous three sessions, helped in part by strong Chinese imports data.
Leading the fallers was Russia-focused steelmaker Evraz, which dropped 11.4 per cent after reporting a surprise 2012 loss and cautioning on its outlook.