The FTSE 100 ended up 76.59 points, or 1.5 per cent, at 5,244.06, extending gains into a second consecutive session after closing 0.5 per cent higher on Monday.
Barclays was the top blue-chip riser, up 6.8 per cent, after saying it had started the year well and beating expectations with a 2009 profit of more than £11.6bn on the back of a strong performance at its investment banking unit.
Lloyds Banking Group rose 4.7 per cent and Royal Bank of Scotland added 5.3 per cent. Both are scheduled to report results next week.
RBS said it was selling the non-US assets of its RBS Sempra Commodities joint venture to JPMorgan for $1.7bn.
HSBC and Standard Chartered also gained, they put on 1.6 and 2.5 per cent, respectively.
“At the moment equities are still providing a decent return compared to other instruments, which is why the market’s still well supported,”said Philip Gillett, sales trader at IG index.
“Whether or not this rally still has further to go I am not sure. I still think we are in for a sideways period.”
A gauge of manufacturing in New York state rose in February as inventories jumped, the New York Federal Reserve said in a report on Tuesday.
The news added to the feel-good factor and boosted demand for commodities as prices in metals and crude oil surged as the US dollar weakened.
Miners Eurasian Natural Resources, Vedanta Resources, Randgold Resources and Fresnillo were among the best off, rising 3.9 to 5.2 per cent.
Anglo American climbed 3.8 per cent after selling its Tarmac construction businesses in France, Germany, Poland and the Czech republic to Eurovia, a unit of France’s Vinci.
BHP Billiton put on 3.1 per cent, also helped by an upgrade to “buy”from ING, while Rio Tinto added 2.5 per cent, helped by a target price hike from the same broker.
Oil and gas producers Royal Dutch Shell, BP and BG Group climbed 1.6 to 2.2 per cent. Broker Bernstein also weighed in with an upgrade to “outperform” for Shell.
Life insurer Legal & General rose four per cent ahead of its fourth-quarter new business figures due out on Wednesday.
Positive broker sentiment aided drinks firm Diageo, up one per cent after a price target hike to 1,070 pence from 985p by ING.
Selected defensive stocks were lower as appetite for risk remained strong. Imperial Tobacco was among the top FTSE 100 fallers, dropping 1.7 per cent, knocked by a downgrade in rating to “neutral” from “buy” by Nomura.
British American Tobacco was down 0.9 per cent.
InterContinental Hotels was the biggest blue-chip faller, off 2.9 per cent.