The FTSE 100 bounced back from recent falls by midday on Monday, boosted by hopes European leaders were prepared to take more dramatic action to cure euro zone contagion.

Investors welcomed talk that Germany and France are exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries.

And sentiment was lifted after media reports, denied by the International Monetary Fund, that Italy was in talks with the IMF over a possible bailout.

There is still speculation that politicians have a newfound sense of urgency and are stepping up attempts to stem the crisis. Unsurprisingly there is a wave of relief flowing through the financial sector, David Jones, chief market strategist at IG Index.

The dented banking sector rose, with Royal Bank of Scotland and Lloyds Banking Group up as much as 5.5 percent, as the risk on trade prevailed despite concerns over the potential for harsher levies on the sector.

The blue chip index <.FTSE> gained 110.90 points, or 2.1 percent to 5,275.55 by 12:09 p.m., led by previously hard hit riskier assets, and extending Friday's 0.7 percent rise.

Volatile trading continued after the FTSE lost more than 7 percent of its value over nine days -- its worst losing streak since 2003 -- before snapping back on Friday.

Index gains were also helped by the forecasts of a strong open on Wall Street.

It will take a few more days of positive moves to convince traders that this rally actually has some solid foundations and is not just a dead cat bounce built on rumour and hope, IG's Jones said.

Analysts noted the FTSE All Share index <.FTAS> had given off positive technical signals - its 14-day relative strength index turned marginally higher - suggesting a trading bounce, but added more significant good news would be needed for it to break above the 2,740 level.


Miners <.FTNMX1770> rallied as Nomura said the sector had been hit too hard in the macro sell-off, driven by global growth worries.

Nomura said the uncertain macroeconomic backdrop had driven a divergence between sentiment and equity valuations for the mining sector and offered a buying opportunity, citing Xstrata , BHP Billiton and Rio Tinto among its top picks.

The diversified miners are now trading at valuations near their global financial-crisis lows, but with repaired balance sheets and growth catalysts on the horizon.

Xstrata, BHP and Rio climbed as much as 3.9 percent.

Thomson Reuters StarMine data shows Rio Tinto and BHP Billiton have average annualised per share earnings growth over the past five years of 6.9 percent and 12 percent respectively.

Their market implied EPS compound annual growth rate over the next five years, however, or the growth rates investors have priced into the stock, is minus 8 percent and minus 12.8 percent respectively.

JP Morgan echoed Nomura's sentiment and said European stock markets are pricing in too much weakness as a result of the region's debt crisis.

The broker said corporate earnings should continue to hold up and remain reasonably highly correlated with those of the United States.

Upbeat broker comment helped Weir climb 5.1 percent as Barclays Capital raised its price target on the company and repeated its overweight rating.

BarCap cited three main reasons for its bullish stance on Weir; its high exposure to multi-year secular growth in shale oil & gas markets, ongoing strength in mining capex with aftermarket resilience, and balance sheet strength giving further opportunities for earnings accretive acquisitions.

Broader macro growth concerns remain after the OECD said the global economic recovery is running out of steam, leaving the euro zone stuck in a mild recession and the United States at risk of following suit, sharply cutting its growth forecasts.

On the downside, Randgold was the only FTSE 100 faller, down 5.5 percent after the gold miner cut its output target due to a series of problems at its Tongon mine in the Ivory Coast.

(It) looks to be a 'perfect storm' at Tongon, Numis says in a note, adding the stock, rated hold, is expensive at 2.1 times its net asset value and 13 times its one-year forward cash flow.

(Additional reporting by Simon Jessop, Francesco Canepa and Brian Gorman; Editing by David Cowell)