Optimism powers FTSE higher
Signs of progress on BP's battle to plug the Gulf of Mexico oil leak also drove blue-chip stocks higher, with the FTSE 100 closing up 2 per cent, or 104 points, at 5,271.02.
Across the Atlantic, the Dow Jones Industrial Average had risen by about 150 points by the close of play in London, fuelled by better-than-expected profits from aluminium maker Alcoa.
The group delivered the first of this year's second-quarter results announcements on Monday night and provided some much-needed optimism over the recovery.
Phil Roberts, chief European technical analyst at Barclays Capital, said: "There's a bit of optimism creeping in about the earnings numbers.
"The doom and gloom stopped at the half-year end. There was a lot of position-squaring, and from that point on the market has recovered."
However, the Footsie had further technical hurdles to clear, he added.
"It's not yet in the clear on its top side, it's not yet above its 200-day moving average - 5,322 points - and still below its June high so there's still significant resistance to be overcome."
Banks were the biggest blue-chip gainers, lifted by hopes that important US banks reporting over the remainder of the week, including JP Morgan, Citigroup and Bank of America, would show the sector in good health.
Among banks, Barclays was the best sector performer, up 4.3 per cent at 312.6p, while Royal Bank of Scotland and Lloyds Banking Group took on 3.9 and 2.6 per cent, respectively, to close at 46.4p and 63.9p.
Despite Monday's news that ratings agency Standard & Poor's still had the UK on negative watch - suggesting its AAA rating was still in jeopardy - the pound bounced back against the dollar, up nearly 1 per cent to $1.52.
On the oil front, prices rose more than 2 per cent towards $77 a barrel as better-than-expected corporate earnings boosted confidence about the economy.
Testing firm Intertek was one of the Footsie's biggest risers after a gain of 63p to 1,640p, helped by a positive note from Bank of America Merrill Lynch.
But it was Scots temporary power provider Aggreko that led the way, lifting 68p to 1,637p after the company completed its work providing energy to the World Cup in South Africa.
Luxury goods group Burberry was 28p higher at 817.5p after better-than-expected first-quarter sales figures, including a 27 per cent rise in revenues as customers snapped up accessories and outerwear.
Outside the top flight, homewares retailer Dunelm was rewarded with a 6 per cent rise in its share price after continued improvement in margins helped offset a weakening trend in its recent sales performance.
Analysts at Numis upgraded their profits forecast for the year to July by 2 million and described the retailer as one of its preferred picks in the sector. Shares were 21.9p higher at 379.9p.