Stocks regained considerable ground today, consolidating their gains this afternoon, as reassuring action in Japan and Libya gave investors confidence.
The morning’s announcement of telecoms giant AT&T’s $39bn (£24bn) takeover of Deutsche Telekom’s T-Mobile USA also lifted both the UK and US markets.
The FTSE 100 closed up 1.2 per cent at 5,786.09.
“Equity markets have rebounded strongly today, despite oil prices pushing higher on the escalation in violence in Libya and simmering unrest elsewhere in the Middle East,” said CMC Markets analyst Michael Hewson.
Engineering companies, among those hit hardest last week by the flight to safety prompted by a nuclear crisis caused by a massive quake in Japan, were the strongest gainers and were also lifted by positive broker comment.
Software engineer Invensys was the biggest riser, up 5.1 per cent at 353.2p, while industrial pumps and valves supplier Weir Group also ended 4.5 per cent up at 1,708p after Credit Suisse upped its rating to “outperform”.
Engine maker Rolls Royce also climbed 3.5 per cent to 598.5p, while the wider engineering sector also benefited, raising peers IMI (up 3.2 per cent to 985.5p) and GKN (up 1.9 per cent at 196.5p) higher in sympathy.
Vodafone closed up 3.6 per cent at 176p after broker Deutsche Bank said the AT&T deal news was positive for the UK telecoms group. The telecoms talk also lifted BT, which gained 2.4 per cent to close at 181.4p.
Stocks that were oversold in the panic after the catastrophes in Japan also rose sharply, with Burberry and Fresnillo up.
And banks performed strongly as investors regained their risk appetite, with Barclays finishing 2.6 per cent higher at 289.5p.
“The banking sector is powering ahead after an upbeat note from Citigroup on Standard Chartered Bank as well as fresh impetus from last week’s fairly positive US stress tests on the US banks,” Hewson said.
On the downside, continuing high oil prices have stoked fears it may threaten the global recovery.
Oil has been hovering around $115 a barrel as western powers continued air strikes in Libya.
India-focused refiner and power generator Essar Energy lost 7.3 per cent to finish at 440.4p despite reporting forecast-beating earnings, after saying a number of key power projects would be delayed.
And UK energy firms also took a hit after regulator Ofgem ruled that it will refer them to the Competition Commission this year unless they make tariffs easier for consumers to understand.
The ruling pushed BG Group down 1.2 per cent to 1,481.5p, International Power down 0.4 per cene to 313p and BG’s owner, Centrica, down 0.2 per cent to finish at 327.8p.
International energy firms fared little better, with Petrofac also hit, closing 1.1 per cent lower at 1,410p, while miners Randgold Resources and Vedanta also lost ground.
“The action by coalition forces in Libya over the weekend has helped market uncertainty in the short-term but it would be dangerous to assume it will be plain sailing for shares from here,” warned IG Index chief market strategist David Jones.
“With plenty of potential for shocks from Libya and Japan, investors will continue to weigh up markets on a day-by-day basis at the moment, so further volatility this week cannot be ruled out.”