Investors shrugged off chaos in the euro zone as the top share index climbed higher on Thursday, with leaders of the most powerful nations meeting in France in an effort to solve Europe's crippling debt crisis.

London's blue chip index <.FTSE> rose 61.54 points, or 1.1 percent to 5,545.64, as the index continued to recoup the sharp losses of more than 5 percent sustained earlier in the week.

Investors responded positively as Greek Prime Minister George Papandreou, under pressure from world leaders, climbed down from his proposal of a referendum on the country's bailout package, providing ruling and opposition parties strike a deal to resolve the country's political crisis.

European leaders said earlier they were prepared for Greece to leave the euro zone to preserve their 12-year-old single currency if Athens did not decide quickly to implement a bailout programme, threatening the likes of Italy and Spain, and even France.

The debt crisis is threatening global growth and heightening the potential for economies to dip into recession.

That threat spurred new European Central Bank President Mario Draghi to cut interest rates by a quarter point to 1.25 percent, surprising investors, as he began reversing the previous administration's policy.

Financials <.FTNMX8350> <.SXIP> were mixed as concerns remained over Europe.

Investors seem to be buying on the plans for the referendum being put on hold, Atif Latif, director of trading at Guardian Stockbrokers, said.

This (uncertainty) does still erode market risk of contagion and we are not convinced by this turnaround and remain cautious around these rallies.

While equities responded positively to the political posturing at the G20 conference, the bond market was less convinced, with Italian, Spanish and Greek 10 year bond yields all remaining near recent highs.

In a further indictment of corporate trust in the euro zone, France's biggest listed bank BNP Paribas slashed its exposure to Greece, Italy and Spain by more than 12 billion euros in a bid to protect its balance sheet as Europe's debt crisis threatens to deepen.

COMMODS RISE

Mining <.FTNMX1770> and integrated oil <.FTNMX0530> stocks drove the market higher as the U.S. economy showed some signs of improvement.

Wall Street was in positive territory as the UK market closed as data showed September factory orders rose and New U.S. claims for unemployment benefits fell, raising optimism ahead of the all important non-farm payrolls on Friday.

Tempering the enthusiasm though was the easing of growth in U.S. service sector activity, which echoed disappointing manufacturing and construction data from Europe earlier in the week.

Mike McCudden, head of retail derivatives at Interactive Investor, said, the gloomy macro economic outlook could trigger another bout of profit taking among investors.

Backed with the slew of poor economic data coming in from all angles, the harbingers of doom should be in full swing in the days ahead. Buyers beware, he said.

While macro uncertainties prevail, investors continue to reward corporates which adapt to the current economic climate and continue to grow profits.

British sweetener and starches maker Tate & Lyle , which makes most of its profits in the United States, added 5.2 percent after it shrugged off the economic downturn to post a 38 percent jump in half-year profit.

ITV gained 5.9 percent as Credit Suisse repeated its outperform on the commercial broadcaster ahead of a third-quarter trading update, due on Monday, November 14, saying the stock deserves a higher rating.

RSA Insurance rose 3.9 percent as it said it was on track to meet its full-year goals after net premium growth of 11 percent in the third-quarter.

Old Mutual , however, fell 0.3 percent after the insurer reported a fall in its funds under management in a third-quarter update.

And Unilever shed 0.2 percent on concerns over falling margins and on valuation grounds, with the shares up around 3 percent in 2011, for its defensive qualities, against more than a 6 percent fall on the FTSE.