The FTSE 100 <.FTSE> index is seen opening up 45 to 48 points, or 0.9 percent higher on Monday, according to financial bookmakers, after an Italian newspaper article buoyed hopes the International Monetary Fund (IMF) is preparing an aid package for Italy.
Adding to the positive mood was news Germany and France were looking at ways to fiscally integrate countries in the euro zone, which could make it easier for the European Central Bank to make euro zone bond purchases.
Investor sentiment was given a boost in Asia and U.S. stock futures rose after a report in Italian newspaper La Stampa, which said International Monetary Fund (IMF) was preparing a rescue plan worth up to 600 billion euros ($796 billion) for Italy.
The IMF, however, said no discussions had taken place with Italian authorities about an aid package and traders were wary any move higher could be short-lived.
Like so many false dawns during the European debt saga, this could be a case of buy the rumour sell the fact, Jonathan Sudaria, night dealer at London Capital Group, said. There is an air of doubt over the story.
A Moody's warning that the credit standing of all European government bond ratings could be threatened due to the escalation of the euro zone sovereign debt and banking crisis may also take the shine off a possible higher start.
The UK blue chip index closed 37.08 points higher on Friday at 5,164.65, ending its worst losing run since 2003 as investors went bargain hunting following the sell-off sparked by worries about the euro zone debt crisis.
The chart formation suggests the market may be ripe for a 50 percent correction of the recent decline. Based on the range created from the October top at 5747.30 to the November bottom at 5075.20, bearish traders are likely to wait for the next shorting opportunity at 5411.25, said James A. Hyerczyk, analyst at Autochartist.
In the past, important bottoms have been reached after capitulation has taken place. The way the FTSE turned around on Friday, does not indicate that this has taken place, leading to the conclusion that the next downdraft is likely to be relatively large.
($1 = 0.7536 euro)
(Reporting by Joanne Frearson)