The FTSE 100 hit a six month closing high, driven by increases in bank and commodity stocks and investor optimism regarding the Greek debt crisis.
The index closed up 0.9 per cent at 5,782.56, the highest closing mark since July 29 2011.
Banks benefited from French Finance Minister Francois Baroin’s declaration that a deal with private sector investors about resolving Greece's debt crisis was taking shape.
Reports that France and Germany will call for a relaxation of Basel III global bank capital rules – to prevent lending to the real economy being choked off – also boosted bank stocks.
Commodities performed well with Royal Dutch Shell up 2.5 per cent on the back of positive ratings from analysts.
Essar Energy saw the biggest increase, adding 10.7 per cent after heavy falls last week while British Airways owner IAG managed a 2.1 per cent increase.
The relatively optimistic mood was also driven by better-than-expected data out of the United States that raised hopes for a strong reading in the country’s fourth-quarter GDP results, due out on Friday.
Preliminary data for the fourth quarter is expected to show the U.S. economy grew 3 per cent, against 1.8 per cent in the previous quarter.