ROYAL Bank of Scotland finished at the top of the Footsie risers board yesterday as hopes of a resolution to Greece's debt problems spurred appetite for banking stocks.
The FTSE 100 index closed 44.54 points, or almost 0.8 per cent, higher at 5,766.88, building on Monday's 0.4 per cent advance.
Sentiment was also boosted by a strong start on Wall Street after better home sales data overshadowed a drop in US consumer confidence.
Will Hedden, sales trader at IG Index, said: "The scenes in Athens of burning TV vans and riot police are not having the same effect on European equities that similar pictures in North Africa and the Middle East have had this year. The prospect of progress regarding the Greek debt situation is perhaps causing complacency, with investors desperately seeking good news."
European Central Bank president Jean Claude Trichet gave the euro a boost as he repeated that he remained in "strong vigilance mode" on inflation, which helped the single currency reach €1.15 against the pound, while sterling picked up to $1.60 against the dollar.
The improved sentiment over Greek debt saw rebounds for some of the heaviest fallers during the market's recent volatility, with RBS up 1.46p at 36.6p and commodities trader Glencore 10.8p higher at 486.4.p.
Water companies also improved after Hong Kong tycoon Li Ka-shing sparked fresh hopes for a wave of deal-making in the sector. Severn Trent lifted 3 per cent and United Utilities rose more than 1 per cent after infrastructure company CKI signalled on Monday that it was looking at the potential for a takeover of Northumbrian Water.
Severn Trent rose 33p to 1,448p and United Utilities added 5p to 592.5p, while Northumbrian Water consolidated Monday's 8 per cent gain after details of the bid interest first emerged. Its shares, which are listed in the FTSE 250 index, were 3.2p higher at 416.7p.
Cable & Wireless Worldwide topped the fallers board in the FTSE 250 index by some distance after it issued another gloomy update on trading. The communication firm's third profits warning in 12 months has prompted the departure of chief executive Jim Marsh and caused the firm to halve its 2012 dividend. Shares slumped 14 per cent or 7.25p to 45p.
Floor coverings retailer Carpetright also slashed its dividend after reporting a 70 per cent drop in full-year profits.
Lord Harris of Peckham, the group's long-serving boss, warned there was little respite in sight for the sector but encouraged investors by insisting Carpetright was in decent shape to weather the storm. Shares fell 22.5p to 667.5p.
Thorntons was another retailer in the spotlight after it announced plans to exit 120 stores and said it had put a further 60 outlets at risk of closure.Shares were 4.5p lower at 58p, a drop of almost 5 per cent.
Among the Scottish stocks, shares in seemingly unstoppable I-Design, the Dundee-based cash machine advertising software firm, continued to surge after last week's interim results, up a further 4.6 per cent or 1.5p to 34.5p. The stock closed at 26.3p on the night before last Thursday's half-year figures,