The top shares climbed into positive territory on Thursday on a relief rally prompted by the naming of former European Central Bank vice-president Lucas Papademos as head of Greece's new crisis coalition and moves in Italy towards a national unity government.
London's blue chip index <.FTSE> rose 23 points or 0.4 percent to 5,482.80 by 1413 GMT, off an intra-day low of 5,360.19.
Greece said Papademos will lead a government that must sign up to a 130 billion euros bailout deal with the euro zone before calling an early election.
On the one hand there is relief that this development in Greece is over and a job can finally be done ... there is a far more complicated aspect to the euro zone that is yet to be dealt with and that is Italy, said Mike Lenhoff, equity strategist at Brewin Dolphin.
One has to have limited expectations of what these markets will do, until there is some concrete resolution or a resolution that is heading in the right direction.
There was further relief as Italy moved closer to a national unity government. That helped Italian 10-year bond yields steady at around 7 percent, albeit a level seen as unsustainable in the long term.
Chris Beauchamp, a market analyst at IG Index, said Wednesday's market hysteria had eased somewhat after the ECB began intervening in the Italian bond market.
He said new ECB head Mario Draghi had managed to buy a little breathing space for his compatriots, but it's difficult to say how long this will last.
Traders said the rise on the FTSE was mainly down to short covering as progress appeared to be made in Europe.
Commodities rebounded sharpest as investors bought in on the dips with the miners <.FTNMX1770> and integrated oils <.FTNMX0530> having been among the hardest hit sectors when the index lost 1.9 percent on Wednesday.
Banks were mixed as investors weighed valuations within the sector against potential exposure to Europe's debt crisis.
Part state-owned lenders Royal Bank of Scotland
Global lender HSBC
A number of brokers cut their target prices and estimates for HSBC, including JPMorgan Cazenove, Deutsche Bank and UBS.
There was little reaction to the Bank of England's (BoE) expected decision to leave British interest rates and its quantitative easing policy unchanged following the central bank's latest two-day monthly meeting.
Among individual blue chip fallers, Admiral Group
Credit data firm Experian
(Editing by David Cowell)