The top share index edged higher early on Wednesday, bouncing back from sharp falls in the previous session, boosted by hopes of further quantitative easing in the U.S. and bullish updates from UK corporates.
London's blue chip index <.FTSE> gained 21.64 points, or 0.4 percent to 5,443.21 by 8:52 a.m., having fallen 2.2 percent on Tuesday after Greece shocked markets by offering a referendum to voters on the recently agreed EU bailout package.
Stocks rose in tandem with U.S. stock index futures ahead of Federal Reserve press conference later on Wednesday.
Traders said investors were hopeful the Fed, which began a two-day policy meeting on Tuesday, could begin to prepare financial markets for further monetary easing, even if it refrains from any new stimulus just yet.
The market is expecting further stimulus will come from the US. The fact that they are discussing it is why the market is better but it has the potential to be sold off quite easily, Martin Dobson, head of trading at Westhouse Securities, said.
A Greece default is not showing in the market and they're really on a knife edge. I'm surprised the market is up. Any gain will be short-lived.
Miners <.FTNMX1770> added most points to the index, rallying in tandem with base metal prices on hope any positive moves by the Fed to ignite growth will drive fresh demand in the sector.
West Africa-focussed miner Randgold Resources
Also boosted by a bullish statement was fashion retailer Next
Seymour Pierce said the update was better than most had feared and Next's valuation does not reflect its future growth potential and cash generation, repeating its buy rating on the firm.
Banks <.FTNMX8350> were mixed, with Barclays
The Asia-focussed bank reported its nine-month underlying profit grew at a double-digit rate and said it had no direct sovereign exposure to troubled euro zone nations, but a weak performance in India weighed on results.
And LLoyds Banking Group
Having gained just over 8 percent in October, the UK's benchmark has fallen 5.1 percent in the previous three trading days as doubts began to surface over the details of the euro zone debt plan.
UBS said weak volumes and little institutional participation raised questions over the sustainability of the recent rally.
Hedge funds have turned net buyers in three of the past four weeks, but long-only investors appear to be selling into the rally. Even during the rally in October, market volumes have been low.
UBS said investors have turned net sellers of the healthcare sector and turned net buyers of construction materials.
Worries over euro zone debt contagion remained after Greek Prime Minister George Papandreou's shock announcement on Tuesday that he intended to let Greeks vote on the 130 billion euro (111.7 billion pounds) bailout package.
Papandreou won the backing of his cabinet on Wednesday to hold the referendum but will find the stunned euro zone leaders who struck the deal last week harder to convince.
Papandreou's strategy could well be to smoke out the opposition by winning the confidence vote on Friday, and then try and gain approval for the austerity plan by presenting it as the best of the two unpalatable options, David Miller, Partner at Cheviot Asset Management, which has 3.5 billion pounds of assets under management.
This crisis has always been more about the politics than the economics. We have now reached the point when the time for talk is over, and coordinated decisions to restore confidence in the euro zone have to be made.
Ex-dividend factors knocked a hefty 12.83 points off the FTSE 100 index on Wednesday, with BP
(Additional reporting by Francesco Canepa; Editing by Hans-Juergen Peters)