The increasing prospect of a boost to Europe’s bailout fund spurred on banking stocks and moved the London market higher.
The richest nations in Europe signalled their willingness to bump up the European Stability Fund – most recently used by Ireland – at a meeting of finance ministers in Brussels, calming investors’ nerves.
The FTSE 100 Index rallied more than 1% or 73.5 points to 6058.9 as banking stocks recovered from Monday’s losses.
Fears surrounding the ongoing debt woes on the continent have troubled European markets for months, as uncertainty mounts over the future of other key economies, including Portugal and Spain.
It was reported that governments which enjoy a “triple-A” credit rating on international borrowing markets resolved in private talks to boost lending capacity for more troubled partners.
Barclays, which is heavily exposed to the Iberian peninsula, moved more than 1% or 4.1p to 310.6p, while HSBC added 10.2p at 713.7p and Lloyds edged ahead 0.4p to 68.5p.
Meanwhile, Fashion house Burberry topped the risers’ board after it delivered another forecast-beating trading update.
The retailer surged more than 4%, up 45p to 1104p, after underlying revenues rose 27% in the third quarter and it guided the market towards full-year profits at the top end of City expectations.
Miners also recovered from losses on Monday, sparked by uncertainty around China’s plans for monetary tightening, with Kazakhmys up 46p at 1662p and Eurasian Natural Resources up 25p at 1097p. Other stocks on the front foot included SABMiller after the brewing giant’s third quarter beer volumes beat expectations, causing shares to rise by 2% or 39p to 2211p.
On a shortened fallers board, GlaxoSmithKline fell after Monday’s announcement that the cost of settling legal disputes over controversial diabetes drug Avandia will hit a record £2.2 billion and wipe out profits for the fourth quarter. Shares fell 25.5p to 1179.5p, a drop of 2%.