Commodity, financial stocks lead FTSE higher

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Insurers were also in demand as bond default worries eased and equity valuations recovered, with RSA Insurance up 1.8 percent, helped by positive comment from Nomura ahead of full-year results due on February 23.

"RSA has performed in line with the FTSE 100 year to date, but has lagged the 'risk on' rally, underperforming the DJ Insurance Index by 8 percent," Nomura said in a note.

"Hence, the results on 23 February could be a catalyst for the stock. If markets re-trench, on the other hand, RSA should have a less marked correction," the broker added.

Integrated oils <.FTNMX0530> and miners <.FTNMX1770> also moved higher on demand hopes as the debt swap deal for Greece lifted some of the uncertainty hanging over the global economic outlook.

Miners were also boosted by more M&A talk following last week's announcement of the proposed merger between Glencore and Xstrata , with reports Canadian metals and coal miner Teck Resources may be building a stake in Australia's third-largest iron ore producer Fortescue Metal .

TELECOM TAKEOVER?

M&A moves also catapulted mid cap Cable & Wireless Worldwide up 44.5 percent, easily the biggest market gainer, after Vodafone Group , the world's largest mobile operator by revenue, said it was weighing a $1.1 billion offer for the telecoms firm. Vodafone shares added 1 percent.

Credit Suisse said with many corporate balance sheets now repaired, appetite for acquisitions is building up, and highlighted financial services group Old Mutual among possible acquisition targets. Old Mutual shares added 2 percent.

On the downside, cruise operator Carnival Corp and airlines group IAG <IAG.L> were among the top blue-chip fallers, down 2.5 percent and 1.4 percent, respectively, hit by fears over a hike in fuel costs as crude prices rose.

Other defensive stocks accounted for a number of other blue chip fallers, with luxury goods group Burberry off 1.1 percent and engineer Weir Group down 0.7 percent, as the appetite for safer assets faded slightly.

"Cyclicals are outperforming defensives by 12 percent (in the year-to-date), but as long as yields continue to move higher, cyclicals will remain the outperformers in our view," JP Morgan Cazenove said in a strategy note.

(Additional reporting by David Brett; Editing by Will Waterman)