Short-term financing costs for Spain more than halved as banks lapped up debt at an auction, with much of the purchasing power said to have come from cut-rate loans from the European Central Bank (ECB).
This, alongside data showing a sharp rise in German business sentiment in December and US housing starts hitting a 19-month high in November, had a positive knock-on effect on risky assets such as banks.
The UK banking sector recouped losses from the previous session when the British government backed proposals to force lenders to separate their retail and riskier investment arms.
But against the backdrop of light volume, with choppy short-term-driven trade likely to feature over the festive period, traders played down the significance of any moves.
“There’s not an awful lot of mileage in it -- it’s a trader’s market, it’s certainly not an investor’s market,” Michael Hewson, analyst at CMC Markets, said.
The UK benchmark FTSE 100 ended up 54.61 points, or one per cent, at 5,419.60, its highest close since 13 December, having shed 0.4 per cent on Monday. It traded just 85 per cent of its 90-day average volume.