The FTSE 100 has closed 67 points higher, helped by tentative hopes of a recovery for Britain's banks and gains by oil and mining companies on high commodity prices.
London's top company share index shrugged off news of rising inflation this morning to close at 5861.9.
Miner Eurasian Natural Resources was the biggest gainer, up 87p, or 6%, at £14.87p, while Lonmin, the South-African based platinum specialist, rose 137p to £32.64p.
Banks received a much-needed boost after Dresdner Kleinwort analysts said they saw grounds for optimism about Britain's banking sector.
"We do not expect a return to the early 1990s in terms of bad debts, as the economic environment is fundamentally different," Dresdner said. "However, we stress-test our forecasts with a 'nightmare scenario' that is not too far from those levels and find that with the exception of B&B, all the banks remain profitable."
Barclays gained 11.50p to 340.75p, Royal Bank of Scotland added 6.25p to 241.25p and HBOS rose 10.75p to 326.75p.
Media stocks were among the day's big losers, hit by a negative view on the sector's prospects from Morgan Stanley analysts.
Reed Elsevier, the Anglo-Dutch publisher, was the biggest faller in the FTSE 100, down 17.50p at 592p.
After a rally yesterday, housebuilders continued their slide. Barratt Developments fell 7p to 90.5p and Taylor Wimpey lost 2.75p to 73.75p.
As the London market closed, Wall Street was around 65 points lower, as renewed worries over the US housing market after data overshadowed reassuring results from Goldman Sachs.
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