Financials led Britain's top share index higher on Wednesday with traders pinning the cause of the latest rally on media reports that European policymakers were planning a dual bailout fund bazooka to resolve the euro zone crisis.

The Financial Times reported eleventh hour talks had begun to create a bigger financial bazooka to present to the European Union Summit on Thursday and Friday.

The package reportedly includes running two separate funds -- the European Stability Mechanism and the European Financial Stability Facility -- and winning added support from the International Monetary Fund.

Once more investors have piled in on equities in hope more than expectation of anything firm being resolved at the summit, keen not to get caught on the wrong side of a rally, but any slightly positive news seeping out of the euro zone prompts gains, Jimmy Yates, head of equities at CMC Markets, said.

Volumes remain light, which suggests a state of apprehension among traders, who still see a high probability of disappointment and remain to be convinced that it's a safe environment for risk-on trades.

London's blue chip index <.FTSE> was up 60.44 points or 1.1 percent at 5,629.16 by 0856 GMT, having closed 0.76 of a point higher in the previous session.

Among the top gainers in the FTSE 100 were insurance buyout vehicle Resolution and luxury goods firm Burberry each benefiting from bullish broker comment.

Resolution added 3.8 percent as Deutsche Bank upgraded its rating for the insurance buy-out specialist to buy from hold, in a review of the European insurance sector.

Despite continuing Euro uncertainty we remain constructive on the insurers' efforts to better manage risk and to improve operationally, Deutsche Bank said.

Burberry , up 12.7 percent in 2011 compared to a 5.6 percent fall on the FTSE 100, gained 2.5 percent as Liberum Capital starts coverage of the luxury goods firm with a buy rating and 1,535 pence 12 month price target.

Burberry has reached an inflexion point. After more than a decade of restructuring, the cost of sorting out legacy issues and investment in a growth platform, is set to fade as both sales and margins accelerate, Liberum said.

Other retailers have not faired so well given disappointing UK data. Reflecting the gloomy trading conditions, Kesa , Europe's No. 3 electricals retailer, shed 4.3 percent after it swung to an expected first-half loss.

German retailer Metro had issued a profit warning in the previous session, adding to pressure on the sector in the run up to the all-important Christmas trading period.

In a cautious outlook on European retail, JP Morgan said: With three weeks still remaining to Christmas, the outlook is worsening daily both in the UK and Europe and we still perceive considerable risk to estimates across the board.

This is not yet reflected in share prices, despite the apparent inexpensive sector rating, recent share price reactions show us that disappointments are far from priced in.

That was food for thought for investors in the UK's biggest retailer Tesco which underperformed the FTSE 100, up just 0.1 percent ahead of a trading update on Thursday.

FINANCIALS LEAD

Banks <.FTNMX8350> and insurers <.SXIP>, which would benefit most from a debt solution in the euro zone, were among the top risers.

Miners <.FTNMX1770> rallied too on the hope that any deal in Europe would help lubricate the cogs of the global financial system and boost demand in the sector.

Citigroup remained bullish on European equities, which it said are poised to deliver returns of 15-20 percent in 2012, despite a likely recession in the euro zone next year, owing to cheap valuations, expected policy changes in the region and with no global recession in sight.

The brokerage said it favoured industries with international exposure and low leverage, and was overweight on health care, oil and gas, basic resources, personal and household goods insurance and food and beverage companies.

On the downside, ICAP was the top FTSE 100 faller, down 3.9 percent with traders citing a downgrade by Morgan Stanley to equalweight from overweight weighing on the stock.

Ex-dividend factors clipped 0.43 point off the FTSE 100 index, with AB Foods and Investec both trading without their dividend attractions.

Investec could also be one of three companies to leave the FTSE 100 when the latest quarterly reshuffle of the index is announced after the London market close on Wednesday.

Inmarsat and Lonmin are also expected to be demoted to the FTSE 250 <.FTMC>.

On the data front, October industrial and manufacturing output numbers will be released at 9:30, with monthly falls of 0.3 percent and 0.2 percent forecast, respectively.