The FTSE 100 rose by midday on Thursday, spurred by the injection of liquidity from central banks designed to grease the engine of the global financial system by easing banks' funding constraints.
Proof the liquidity boost was doing its job in the short-term came as the latest debt sale by distressed euro zone country Spain reached its maximum target and at prices below yields around 7 percent widely held as unaffordable over the long term.
Banks were higher as the stimulus loosened the lending conditions that had threatened to stall credit markets in a repeat of the 2008 crisis, which saw the collapse of Lehman Brothers.
Nomura said it viewed Barclays
Investors cheered Kingfisher
London's blue chip index <.FTSE> rose 24.30 points or 0.4 percent at 5,529.72 by 12:04 p.m., adding to the previous session's 3.2 percent rise.
Analysts said the present rally could reflect investor concerns not to be caught short on the upside, rather than the prospect of brighter economic outlook.
I think the stock market has got it wrong with this rally. The reason why shares have shot up is that equity fund managers are terrified of missing a December rally, Louise Cooper, markets analyst at BGC Partners
Cooper argued that although the central bank action represented an important psychological step, it will only ease credit problems in one part of the market at best and is also an acknowledgement that a previous attempt to provide unlimited dollar liquidity to European lenders failed.
Defensive stocks were among the top performers with British American Tobacco
Goldman Sachs said it has become more defensive in its sector portfolio, upgrading healthcare to overweight and downgrading banks to underweight.
For the liquidity boost to work over the longer-term, economies need to see the credit fed through to businesses to fuel the growth, which will in turn help governments pay down the debt that is currently stifling global growth.
At the moment growth is anaemic at best and the debt crisis is impacting growth in countries previously thought to be relatively immune to the problems in Europe and the United States.
Miners were mixed as investors weighed up their cheap valuations against the broader macro economic outlook, while commodity prices fell after poor Chinese manufacturing data heaped demand concerns on the sector.
China, which cut its banks' reserve requirement to shore up the economy on Wednesday, said its factory sector shrank in November for the first time in nearly three years.
RBC Capital Markets said to take into account slower forecast growth, it has lowered most of its 2012 forecasts for commodity prices, with the exception of aluminium and uranium, which are unchanged.
The Euro zone's manufacturing sector contracted at its fastest pace in two years last month, as the downturn in the periphery took hold in the core.
Britain's manufacturing sector shrank for a second successive month in November and at its fastest pace since June 2009.
With contagion from the debt crisis spreading through Europe, politicians have again been trying to reassure markets.
Head of the European Central Bank, Mario Draghi, signalled it was ready to take stronger action to fight Europe's debt crisis if political leaders agree next week on much tighter budget controls.
The actions from the central banks, while good for sentiment, show how desperate the situation has become. The question is, is it too little too late?, Jimmy Yates, head of equities at CMC Markets, said.
FTSE 100 gains could be tempered with Wall Street signalling a lower open following the previous session's surge, and ahead of November ISM manufacturing data, due at 3 p.m.