The UK benchmark index ended up 44.63 points, or 0.9 per cent, at 5,174.25, recovering from an intra-day low of 5,069.52.
Trading was turbulent as talk swept the market of ways the Eurozone debt situation could be alleviated.
A report the previous day that highly indebted Italy was seeking financial support from China helped push the FTSE 100 into positive territory early on, but these gains evaporated, with others suggesting this was unlikely.
Rumours also did the rounds that French president Nicolas Sarkozy and German chancellor Angela Merkel were set to make an announcement on Greece, but this was denied by French president Sarkozy’s office.
Merkel sought to quash talk of an imminent Greek default, but market confidence suffered another blow when Italy had to pay the highest yield since it joined the eurozone in 1999 to sell five-year bonds.
“Some very important weeks coming up, with the Greek situation dominating headlines and fears of further contagion into Europe making this a very difficult market to trade,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages some $500m of assets.
Banks, sold off in the previous three sessions, were jostled around in the buying and selling frenzies, but ended on a positive note.
Royal Bank of Scotland, Barclays and Lloyds Banking Group were the FTSE 100’s biggest gainers, up 5.3 per cent, 4.7 per cent and 4.2 per cent respectively.