The FTSE-100 Index closed up 45 points to 6098.7, after gaining more than £11.4 billion – a level not seen since May 2008.
The Dow Jones Industrial Average on Wall Street was more than 80 points higher in early trading after aluminium giant Alcoa posted solid fourth quarter figures.
The pound was down against the US dollar and the euro at 1.60 and 1.22 respectively, after UK trade figures showed only a small improvement on the trade deficit in November.
Banking stocks led the top flight charge after UBS upgraded Lloyds Banking Group from neutral to buy and raised its price target to 60p on the hope that rising margins, falling costs and lower provisions for bad debt will boost profitability. Its shares leapt 5% higher, up 2.5p to 53.4p, while Royal Bank of Scotland was up 12.9p to 349.9p and Barclays lifted 7.6p to 294.8p.
But supermarket shares were among the fallers. Concerns over slowing sales growth at Sainsbury's overshadowed resilient trading for the key Christmas period and sent shares 3% into the red, down 9.8p to 329.2p.
The supermarket reported record-breaking sales in the Christmas trading week, but was the biggest faller on the FTSE-100 as analysts said the underlying picture suggested falling sales volumes when inflation is stripped out.
The chain posted a 0.9% rise in like-for-like sales excluding fuel in its third quarter to January 5, although this was lower than the 1.9% reported the previous quarter. Rivals Morrisons and Tesco – which reports its figures today – were also dragged lower, down 1.3p to 252p and 2.4p to 349.2p respectively, as experts said the sector would find it hard to grow profits over the year ahead.
Outside the top flight, shares in Frankie & Benny's owner Restaurant Group slipped 5% despite the company reporting a 4.5% rise in like-for-like sales for 2012 and forecasting results slightly ahead of expectations. The City's ongoing concern about price discounting meant shares fell 18.2p to 364p.
The biggest FTSE 100 risers were Lloyds Banking Group up 2.5p to 53.4p, Royal Bank of Scotland ahead 12.9p to 349.9p, Meggitt 15.5p higher at 425p and Wood Group up 24.5p to 774p.
The biggest FTSE 100 fallers were Sainsbury's down 9.8p to 329.2p, Aviva off 8.2p to 373.7p, and British Sky Broadcasting 14.5p lower at 778p.