Britain's top shares rallied on Wednesday as hopes for further economic stimulus and support for debt-stricken Greece boosted appetite for riskier banking and commodity stocks.
Banks and miners , which have shed around a third of their value in 2011, gained as the International Monetary Fund's European Department Director Antonio Borges said the IMF would definitely participate in a second bailout package for Greece if the Washington-based lender was happy about the country's determination to solve its debt problems.
That followed Tuesday's announcement that European finance ministers had agreed to safeguard their lenders, which came shortly after Franco-Belgian municipal lender Dexia SA was bailed out.
U.S. Federal Reserve Chairman Ben Bernanke's assurance on Tuesday that the Fed would step in to boost a flagging recovery added fuel to hopes that policymakers on both sides of the Atlantic were finally getting to grips with the severity of the problems facing the global economy.
Focus will now switch to a meeting of the European Central Bank governing body on Thursday, where Goldman Sachs said it expects further action.
Further liquidity measures would show that the ECB has temporarily abandoned its policy of reducing bank dependence on its funding, the broker said.
Practically, banks do not have other options, and we expect usage to increase sharply. We view this as necessary.
London's blue-chip index had risen 113.26 points, or 2.3 percent, to 5,057.70 by 1112 GMT, having shed more than 3 percent over the previous two trading days.
The UK's benchmark index received further support as U.S. futures reversed to indicate a stronger opening on Wall Street, with traders citing talk of corporate M&A activity and the hope for decent U.S. job numbers from the ADP National Employment survey, due at 1215 GMT.
UK RETAIL TROUBLES
Retailers missed out on the rally as downbeat updates from several among them gave a stark reminder of the challenges.
Top British retailer Tesco Plc posted one of its biggest-ever falls in underlying sales, while rival J Sainsbury Plc reported only modest growth.
Mothercare plunged more than 35 percent after warning its full-year results would be hit by deteriorating UK sales as British consumers reined in spending.
The UK sales have been weak for some time, being rescued by overseas expansion. UK expectations have been written down and written down, so to be 'well below' expectations is serious, a London-based trader said.
In the current environment, statements like that, especially in the consumer-facing sector, are taken very badly.
Mid-cap British youth fashion retailer SuperGroup slumped 23 percent after it said full-year profit would be hit by problems with a new warehouse management system.
And Europe's largest regional airline Flybe tumbled 40 percent after saying there was a significant slowdown in sales across its UK domestic network in September.
UBS said it expected the Bank of England to relaunch its quantitative easing programme in the coming weeks, focused on gilt purchases, but remained concerned that it showed a lack of understanding of the challenges facing consumers.
Monetary policy is loose in terms of policy rates but very tight for real-world borrowers -- because of regulatory actions.
There were mixed messages on the economic data front as UK services PMI data surprised on the upside but official data showed the British economy grew less than expected in the second quarter.
This latest UK GDP announcement is far from encouraging ... There's no denying that we're still a long way from true economic recovery, said David Garbacz, senior sales trader at Star Financials.