Some traders said the blue-chip FTSE 100 had the scope to gain a further 100 points before levelling out at around the 6,500 level, and that it could then trade sideways in a roughly 200 point range until the end of August.
The FTSE 100 closed up 1.2 per cent, or 74.16 points higher, at 6,387.37 points.
Its advance, which accelerated as the US S&P 500 hit a record high, pushed the index back towards a five year peak of 6,533.99 points reached last month, although it failed to close above a 6,400 point level seen as key by some traders.
Since the start of April, the FTSE 100 – which has risen nearly 10 per cent since the start of 2013 – has traded in a relatively tight 288 point range from lows of around 6,214 to peaks of 6,501.78 points.
Banking and mining stocks – referred to as “high-beta” shares that often outperform a rising market or underperform a falling market – dominated much of the FTSE’s leader board.
UK bank Barclays rose 4.3 per cent to add the most points to the FTSE, which traders attributed to a bullish note on the sector from analysts at Sanford C. Bernstein.
“If you want to make money at the moment, you’ve got to be in the banks,” said Terry Torrison, managing director at Monaco-based McLaren Securities.
Torrison said investors should look to add to equity positions on days when the market fell, rather than sell out at a profit on days when it rallied. “The bias is to the buyside.”
Low-cost airline EasyJet was the best-performing FTSE 100 stock as it surged 6.7 per cent after investment bank Citi raised its rating on the stock to “buy” from “neutral”.
Mining stocks also performed strongly, with Vedanta rising 5.7 per cent after data from China, the world’s top metals consumer, showed a bigger-than-expected rise in imports.
Hartmann Capital trader Basil Petrides said he would look to buy mining stocks such as Rio Tinto for relatively cheap prices on days when they fell, and would only hold them for around two weeks before selling them back at a profit.
“I would look to buy the miners on the dips but only for a short-term period,” he said.
JN Financial derivatives trader Rick Jones also said he would look to buy the FTSE 100 index on the dips.
He added: “We do believe the upside has been capped at 6,500, and I would expect sideways trading between 6,150 and 6,500 between now and August.”