A late bank rally helped the top share index end a torrid week on a stronger note on Friday after Italy's approval of austerity measures lifted risk appetite and fund managers argued the stock market gains have got further to run.

The measures, demanded by the European Union, will now go to the Italian lower house, where it is expected to be approved on Saturday. Italian bond yields fell.

The news gave battered UK banks and insurers a shot in the arm, as investors sought value at low levels, with Royal Bank of Scotland and Lloyds Banking Group towards the top of the leader board, both up more than 6 percent.

Schroders was the top riser, up 6.8 percent, as Deutsche Bank upgraded the fund management group to hold from sell, saying the harsher climate is now priced in, and pointing to Thursday's third-quarter profit-beating forecasts.

British Airways and Iberia owner IAG also notched up solid gains, up 4.9 percent, after raising growth and cost savings targets and saying it expected an operating profit of around 1.5 billion euros (1 billion pounds) in 2015, which broker Davy said was a positive for the company.

Andrew Bell at money manager Witan sees the equity market as far from an avoid, and that on a strategic timescale, it looks attractive, with risks mostly short term.

The risk of political mistakes in handling the euro zone debt crisis creates volatility from day to day and the possibility of a very adverse episode for markets if European leaders allow the contagious collapse in confidence in European sovereign credit to spin out of control.

Common sense argues that this will not be allowed to happen and rationality is likely to assert itself in the end, Bell, chief executive of the 1.1 billion pound Witan Investment Trust, said.

The FTSE 100 <.FTSE> closed up 100.56 points, or 1.9 percent, at 5,545.38, although up only 0.3 percent on the week.

Volumes on the index were thin, at only 74 percent of the 90-day daily average, as investors hang fire until further evidence emerges euro zone debt problems are being resolved.

Colin McLean, managing director of SVM Asset Management, said policy response is not yet enough to calm nerves completely, and that quantitative easing from the European Central Bank would be a key game changer for equities.

I think the market's starting to price that in because it just thinks that there's no room left... and despite the German resistance in terms of inflation, there's probably no real inflationary risk from doing that now, he said.

It would set up conditions I think for a reasonable, at least short-term, market rally.

He added that there is potential for the UK's beleaguered financials to rally 10 to 20 percent between now and year-end.

In evidence of dissipating anxiety, the FTSE 100 volatility index <.VFTSE> fell 15.2 percent on Friday.

On the second line, Premier Foods
, the deeply indebted owner of Hovis, Ambrosia and Mr Kipling, jumped 32 percent, bouncing back after recent hefty falls, with traders citing a short squeeze on the shares after the firm managed to get some financial breathing space earlier in the week.

A major blue-chip faller was Brazil-exposed gas producer BG Group . It sank 1 percent, with traders citing a read- across from Portuguese oil firm Galp Energia .

Galp's shares shed nearly 11 percent after the sale of a stake in its Brazil deep-sea oil business to Chinese state-owned oil firm Sinopec Group put a weaker-than-expected value on its assets there.

The read across for BG Group is negative ... because you've got to question whether if they wanted to sell those assets then they're not actually as valuable as we might have been thinking, Santander analyst Jason Kenney said.

(Additional reporting by David Brett; Editing by Erica Billingham)