Top shares powered ahead at the start of the new trading year on Tuesday as upbeat economic data from the United States, Europe and China boosted risk appetite and helped investors set aside fears over the euro zone debt crisis.
The pace of growth in the U.S. manufacturing sector accelerated in December, its best month since June, as U.S. construction spending in November surged to a near 1-1/2 year high.
The data added to earlier optimism triggered by better Chinese manufacturing and service data and German unemployment which fell more than forecast.
Stefan Angele, head of investment management at Swiss & Global Asset Management, which has around 80 billion Swiss francs (54.8 billion pounds) of funds under management, said that while the European sovereign debt crisis posed a big threat, any positive news that reduces uncertainty and improves sentiment might lead to a re-pricing of equities on a higher level.
The benchmark <.FTSE> ended up 127.63 points, or 2.3 percent, at its session peak of 5,699.91 -- its highest close since October 28. The index ended well above its 200-day moving average around 5,610.
Miners, which fell around 30 percent in 2011, contributed more than a third of the FTSE 100's gains, led higher by a 9.5-percent jump in Kazakhmys
Jefferies International said that equities are cheap compared to bonds, but the asset class could be trapped in a range until the velocity of money increases in the global economy.
Equities will show modest double digit returns but for the best part of the year will be range bound, in our view. The implicit faith equity investors have in policy makers will be tested again and may mean trendless markets until QE (quantitative easing) is adopted, the investment bank said in a note.
Lex van Dam, hedge fund manager at Hampstead Capital which manages $500 million (319.5 million pounds) of assets, said that if the market remains firm people will have to buy because of the fear of missing out.
The fundamentals won't be as important right now unless they really change significantly either way, he said.
Buyers came in for banks, with Barclays
Banks -- around 30 percent lower in 2011 -- also climbed as investors dipped into riskier assets perceived to have been dealt with harshly in 2011 on the back of fears over the health of the global economy.
(Additional reporting by David Brett; Editing by David Cowell)