The top share index rose for the third day on Friday, up 1.3 percent led by banks and commodity plays as the U.S. Federal Reserve chairman signalled a possible interest rate cut, whetting investors' appetite.
The FTSE 100 ended up 83.4 points at 6,432.5, its highest closing level in two weeks. The blue-chip index fell 4.3 percent in November, its biggest monthly percentage loss since May 2006, but it is still up 3.4 percent for the year.
European shares also finished the day higher.
"People are trying to get the market up for the month's end," said Lawrence Peterman, investment director of Eden Financial. "It is good for everyone. We have monthly evaluation."
"Secondly, there is a bit of recovery in the banks on the back of being oversold again ... Thirdly, the expectation of a rate cut in the States. Generally, the market feels a bit oversold and a bit overbearish. I would suggest that next week we might see a pullback again."
The prospect of lower interest rates gave recently hard-hit banks some respite, contributing nearly 36 points to the index.
Barclays, Royal Bank of Scotland, HSBC, Standard Chartered and Alliance & Leicester climbed between 2 and 6.6 percent.
Fed Chairman Ben Bernanke said late on Thursday a resurgence in financial strains in recent weeks had dimmed the outlook for the U.S. economy and the Fed would have to "remain exceptionally alert and flexible".
Northern Rock, the most prominent casualty of the credit market ructions, ended up 1.1 percent after falling as much as 11 percent.
J.C. Flowers raised the stakes in the rescue battle for the stricken bank, offering to improve its bid but also warning it will walk away if the government won't talk with it, a person close to the buyout firm said.
Rate cut hopes also boosted building products distributor Wolseley, which has large exposure to the U.S. housing market. The stock was up 4.6 percent.
Commodity shares were also in demand, boosted by firmer base metal prices and consolidation in the energy sector after Italy's Eni agreed to buy oil explorer Burren Energy.
Gas producer BG Group tacked on 3.5 percent, Tullow Oil added 5.6 percent and Royal Dutch Shell gained 0.5 percent. Burren Energy added 9.4 percent.
In the mining sector, Vedanta Resources, Anglo American, Xstrata, Lonmin and Antofagasta rose between 1.1 and 5.1 percent.
Insurer Standard Life, which fell below its 2006 listing price in the aftermath of its failed bid for Resolution earlier this month, gained nearly 5 percent, boosted by shareholders using their cash dividend, paid on Friday, to buy more shares through a reinvestment plan.
Fellow insurer Prudential was up 3.3 percent after Merrill Lynch added the stock to its most preferred list.
On the downside, Kingfisher shed 3.4 percent to top the losers' list on the FTSE 100 after JPMorgan and Citigroup cut their price targets on the retailer.
Mitchells & Butlers eased 1.5 percent as traders cited a series of broker downgrades after the company posted results on Thursday. ( Reuters )